In the secondary market, the yield on Nigerian Treasury bills increased by 17 basis points to 7.6% ahead of the Central Bank of Nigeria’s (CBN) main market auction (PMA) on Wednesday.
The yield curve’s upward movement was impacted by selloffs in the 91 and 182-day Treasury bills instruments. The yields on these short-term, mid-tenor securities increased by 26 and 28 basis points, respectively, to 5.3% and 7.1%.
According to fixed income market updates, purchasing demand dominated the long end of the curve last week, as the yield declined 2 basis points to 10.2%.
The CBN is set to roll over maturing treasury notes worth N153.99 billion this week, amid persistent optimism that rates pricing will improve despite the financial system’s solid liquidity circumstances. The amount of the rollover will be split into 91-day bills worth N4.52 billion, 182-day bills worth N1.31 billion, and 364-day bills worth N148.15 billion.
In its last auction in July, the CBN repriced Treasury bills at higher spot rates at its midweek primary market auction following its sustained monetary policy tightening. At the auction, the CBN offered instruments worth N264.33 billion for subscription.
The total sum was split as N1.74 billion for the 91-day, N1.26 billion for the 182-day, and N261.33 billion for the 365-day bills. Noting the changed market dynamics, the apex bank doubled down spot rates on 364-day bills to 12.15% last week, up by 6.21% after it announced a 25 basis points interest rate hike to 18.75%.
For most of the trading activities conducted last week, buoyant liquidity levels in the system supported bullish sentiments in the Treasury bills secondary market.
During the week, fixed income securities market players looked to invest excess funds in short and long-dated bills. The liquidity flood experience triggered bill buying by local banks, and assets/fund managers, causing the average yield to slump to 7%.
Across the curve, traders said the average yield contracted at the short (-26bps), mid (-1bp), and long (-17bps) segments following buying interest on the 83 days to maturity (-102bps), 174 days to maturity (-1bp), and 237 days to maturity (-193bps) bills, respectively.
In the money market, the overnight (OVN) rate expanded by 543 basis points to 6.8% as CRR debits induced by CBN’s re-enforcement of the loan-to-deposit ratio compliance across the banks pressured the financial system.
The Open Repo closed at 5.8% from 0.9% recorded previously as analysts highlighted that the overnight rate remained in single digits as system liquidity remained elevated. During the week, Cordros Capital reported that average system liquidity settled at a net long position of N723.80 billion from N363.38 billion in the previous week.
As of Friday’s close, liquidity in the financial system decreased to ₦277.78 billion, 52.4% lower than the prior week’s level, according to Afrinvest.
