Massive asset sales in the wake of the decision by the top bank market to lower the spot rate on 364-day bills caused the average yield on Nigerian Treasury bills (NTB) to increase by 269 basis points in the secondary market.
Banks continued to maintain the market stable after the Central Bank of Nigeria (CBN) devalued the naira, but other portfolio investors’ risk-off attitude shifted to Treasury bill selloffs.
Investor attitude in the NTB secondary market remained pessimistic despite a plethora of twists and turns in the financial sector. Extended sell-offs throughout the curve were sustained by a low level of liquidity.
As a consequence, according to Cordros Capital Limited’s market update sent to clients via email, the average yield across all instruments rose by 269bps to 9.7%.
Across the market segments, traders noted that the average yield expanded by 293bps to 9.7% in the T-bills segment and advanced by 124 basis points to 9.7% in the OMO bills secondary market. Banks Face Risks over 24hrs FX Positions Sell Down
Last week, the CBN offered OMO Bills instruments worth N350.00 billion at the primary market auction it conducted. The offer was split into N75.00 billion for the 92-day, N75.00 billion for the 183-day, and N200.00 billion for the 365-day bills – to participants.
Total subscription at the auction settled at N533.80 billion with more demand skewed towards the longer-dated bill, attracting N518.80 billion. The auction closed with the CBN allotting precisely what was offered at respective stop rates of 10.00% (previously 10.00%), 13.50% (previously 13.50%), and 17.00% (previously 17.50%).
“Yields in the Treasury bills secondary market will likely rise further next week, as our expectation of a possible liquidity dearth might weigh on bill demand”, said Cordros Capital.
On Wednesday, the apex bank is scheduled to conduct a treasury bills primary market auction. According to auction calendar, a total of N417.06 billion worth of maturities would be offer to market participants.
In the money market, benchmark short term interest rates increased as liquidity level dropped. The overnight lending rate expanded by 237 basis points to 21.2%, traders said.
Analysts explained that settlements from the FGN bond worth N418.20 billion and OMO bills NN350.00 billion auctions outweighed the inflows from FAAC disbursements totaled N743.13 billion.
Consequently, the average system liquidity closed lower at a net long position of N133.10 billion as against a net long position of N487.45 billion in the previous week.
“we anticipate a further squeeze in system liquidity as the expected sole inflow from OMO maturities of N26.00 billion may be insufficient to support the financial system amid a possible net NTB issuance”, Cordros Capital said in its market note.
