The yield on Nigerian Treasury bills surged dramatically as the market reacted to the central bank’s monetary policy rate hike, which was part of measures to anchor the country’s double-digit headline inflation rate.
In the secondary market, fixed interest securities investors sold their Treasury Bill holdings, signaling a shift in sentiment from the previous day’s market surge. While the real return on investment has improved, the market reacted with a rapid profit-taking attitude during the Central Bank of Nigeria’s (CBN) primary auction on Wednesday.
The market negative interest yield fell to 4.9% after the CBN increased the benchmark interest rate to 27.25% to anchor inflation, which decelerated to 33.15% in August. The apex offered investors N127 billion worth of Nigerian Treasury bills at its main market auction on Wednesday.
In the past auction sales, the CBN slashed rates across standard tenor as inflation moderated. Trading activities were relatively low as participants shifted their focus to the primary market auction. However, the market sentiment was bearish, with yields rising strongly, up by 108 basis points, with sell pressure seen across the short, belly, and long ends of the curve.
As a result, the average mid-rate across the benchmark NTB papers increased by 108 bps to settle at 21.8%. “We expect the NTB auction result to influence market direction on Thursday,” fixed income traders said. In its market update, Cordros Capital Limited stated that across the curve, the average yield advanced at the short (+137bps), mid (+94bps), and long (+99bps) segments.
The yield expansion seen across these curves in the secondary was due to sell pressures on the 78-day to maturity, with 491bps yield surge. Investors selling pressure at the belly of the curve nudged the yield on 134-day to maturity upward by +180bps.
At the long end of the curve, investors sell activities on the 211-day to maturity Treasury bill, which pushed its yield higher by +165 bps. Conversely, the average yield dipped by 2 bps to 23.6% in the OMO bills segment, traders said in a note.
