Bonds, Treasury Bills Yields Rise after CBN Spot Repricing
Buckets of selloffs on Federal Government of Nigeria (FGN) Bonds and Treasury bills lifted average yields upward as the apex bank conducted a primary market auction (PMA) last week. Demand remained subdued as liquidity pressures in the financial system persisted till Friday.
MarketForces Africa reported that CBN sold Treasury bills worth N264.29 billion to completely mop up the same amount of matured treasury bills. The Auction result posted shows that the 91-day and the 182- day Treasury bills were issued at higher rates amid weak investor appetite.
Reacting to this, in the secondary market for treasury bills, average yields surged after spot pricing on low to mid-tenored instruments was repriced upward at the auction on Wednesday amidst a relatively higher interest rate environment.
Generally, the selling pressure seen in the fixed income market was propelled by a lower cash position in the financial system amidst illiquidity pressures in the banking sector.
Traders reported that the liquidity position in the financial system remained poor up till Friday due to lower inflows, resulting in pressures on short-term money market rates. Last week, the overnight lending rate was unchanged at 15.0% as the funding conditions in the system remained depressed.
In a market note, analysts at Cordros Capital said the money market closed with an average net short position of N138.48 billion versus a net short position of N135.74 billion in the previous week.
However, analysts said they expect the overnight rate to trend southwards in the coming week, as a combined N485.00 billion comes into the system from FAAC disbursements of N480.00 billion and N5.00 billion from OMO maturities.
In the secondary market for the Nigerian Treasury bill, the average yield across all instruments expanded by 53 basis points to 8.1% as investors reacted to higher spot rates. READ: Sell Pressure, Assets Repricing Drive Bonds, T-Bills Yields Up
Across the segments, traders at Cordros Capital said average yield increased by 68 basis points and 48 basis points to 9.6% and 7.7% at the open market operations (OMO Bills) and T-Bills secondary markets, respectively.
The CBN held its bi-weekly auction on Wednesday, offering N264.28 billion worth of bills split into N2.22 billion for the 91-day, N3.54 billion for the 182-day, and N258.53 billion for the 364-day – to prospective investors.
As in the previous auction, the CBN allotted precisely what was offered at respective stop rates. The market saw an increase in stop rate for 91-day bills to 2.88% from 2.70% and for the 182-days from 4.00% to 4.10% while the stop rate for the 364-day bill was unchanged at 7.00%.
Meanwhile, the value of FGN bonds traded in the mixed bag for most of the maturities. Specifically, the 10-year, 16.29% FGN MAR 2027 instrument was bullish, closing the week at N115.87. However, yields declined 0.17% from the previous week while the 20-year 16.25% FGN APR 2037 remained flat at N124.70 and its yield was unchanged at 12.53% from last week’s close.
However, the 15-year 12.50% FGN APR 2035 debt instrument declined N1.25 to close at N98.70 ( from N99.95) and the yield closed at 12.70% (from 12.50%) and then the 30-year 12.98% FGN MAR 2050 bond tanked by N0.10 to N98.70 from N98.80, while it yields closed at 13.49% (from 13.14%).
Also, the value of FGN Eurobonds traded during the week at the international debt capital market performed appreciating for all maturities tracked on renewed positive investors’ sentiment.
Consequently, the 10-year, 6.375% JUL 12, 2023 bond, the 20-year, 7.69% FEB 23, 2038 paper and the 30-year, 7.62% NOV 28, 2047 debt paper close the week in the northern region as their yields declined to 8.55% (from 9.44%), 13.32% (from 13.50%) and 12.57% (from 12.75%) respectively.
“In the new week, we expect the value of FGN Bonds, to increase further (and yields to fall) amid increased demand due to the forthcoming FGN Bonds Auction by the Debt Management Office”, Cowry Asset analysts said in a note.
“We maintain our view of an uptick in bond yields in the medium term, as both the FGN’s borrowing plan for 2022 and the expected fiscal deficit point towards an elevated supply”, Cordros Capital analysts note reads. # Bonds, Treasury Bills Yields Rise after CBN Spot Repricing.