Following a Tuesday purchasing spike in the secondary market, the average yield on Nigerian Treasury notes decreased in response to the country’s increasing inflation increase. From 22.79% in June 2023, the headline inflation rate increased by 129 basis points to 24.08%.
Inflation and interest rates are getting worse, which exposes naira assets to negative returns and discourages foreign investors from making significant investments in the fixed income market. The Central Bank of Nigeria (CBN) offered N153.98 billion worth of securities for sale at the auction last week, out of which N836.30 billion was purchased by investors.
Investors were informed by Futureview Financial Limited that the extreme demand resulted in a considerable decrease in stop rates, which ended up at 5.00%, 5.90%, and 9.80% for the 91-day, 182-day, and and 364-day tenors, respectively.
In comparison, the previous auction had seen higher stop rates of 6%, 8%, and 12.15% for the same tenors, according to CBN’s primary market auction result. The surge in demand was supported by liquidity levels in the system. However, debit for the Treasury auction has affected the market funding profile.
Due to significant outflow from the system, liquidity in the money market remained tightened. Specifically, the system liquidity contracted by 35.23% to N193.21 billion on Tuesday.
Short-term benchmark rates slumped, according to data from FMDQ Exchange. The open repo rate (OPR) surged to 8.40%, 260 basis points above the previous level. Also, the overnight lending rate surged by 230 basis points 7.30% over tight liquidity conditions in the market.
Then, The Nigerian Interbank Treasury Bill’s True Yield saw an upward movement for most tracked tenors, despite the average secondary market yield on T-bills closing lower at 7.25%.
Across the curve, most of the day’s activity was witnessed at the long (-9bps) end as market participants demanded the 296-day to maturity (-105bps) bill; the average yield was flat at the short and mid segments.
Elsewhere, the average yield contracted by 41 basis points to 11.8% in the OMO segment. In the forex market, the Naira depreciated against the US dollar at the Investors and Exporters FX windows, trading at N774.77, about a 4% decline from its opening spot rate of N744.10.
