In response to rising demand for naira assets, the monetary authority has begun to reduce interest rates on Nigerian Treasury and OMO bills in the primary market. This week, the market is waiting for inflation statistics. Analysts believe that inflation will continue to have an impact on asset pricing in the debt capital market.
In the fixed income group, the real return difference has narrowed to 4.9% after the monetary authority raised the benchmark interest rate to 27.25% last month to combat inflation of 32.15%.
The Debt Management Office (DMO) issued N81.90 billion in instruments to investors across conventional maturities at the biweekly Nigerian Treasury bills auction on behalf of the Central Bank of Nigeria (CBN).
Last week, a total of N28.47 billion of 91-day bills was offered at the primary market auction conducted by the Apex Bank to investors seeking cover against inflation. The CBN also opened N22.67 billion worth of 182-day Nigerian Treasury bills for subscription and N30.76 billion for the 364-day bills to market participants.
According to Cordros Capital Limited, aggregate subscription settled lower at N271.87 billion, translating to bid-to-offer of 3.3x, compared to the previous auction subscription level of N304.27 billion.
Eventually, the DMO allotted exactly the amount offered – N12.96 billion for the 91-day, N3.91 billion for the 182-day and N65.03 billion for the 364-day papers.
The auction results revealed that stop rate for 91-day treasury bills was priced at old rate of 17.00%, 181-day bills was sold to investors at the old rate of 17.50%. Reflecting previous pattern before benchmark interest rate was adjusted upward, the CBN slashed rate on 364 day bills to 19.86% from 20%.
Also, the CBN also conducted an OMO auction offering instruments worth N300.00 billion across standard maturities to breeds of investors.
The Apex Bank opened bid for N25.00 billion for the 95-day OMO bills for subscription. The CBN also offered to sell N25.00 billion of 179-day OMO bills and N250.00 billion worth of 361-day OMO Bills to investors.
Investors maintained previous positioning pattern at the longer end of the curve. Total subscription settled at N908.23 billion, translating to bid-to-offer ratio of 3.0x.
The CBN allotted N905.23 billion for the 361-day OMO bills at a stop rate of 24.3% while no sales were made of the 95-day and 179-day OMO bills, Cordros Capital Limited said.
“Based on our expectation of a possible liquidity deficit in the coming week, we expect yields in the Treasury bills secondary market to trend higher as participants in the market look to fulfil their funding needs,” the investment firm added.
