T-Bills Yield Inches Near 8%, Bond Rises to 13.5%

T-Bills Yield Inches Near 8%, Bond Rises to 13.5%

Ahead of the Central Bank of Nigeria (CBN) primary market auction (PMA) this week, the average yield on Nigerian Treasury bills has already inched near 8% following an upward adjustment to spot rates seen at the previous auction.

Again, market participants hope to see higher spot rates amidst an expectation that the inflation figure for September will worsen and tight liquidity in the financial system could as well force spot rates on rollover bills worth about N191 billion to spike.

According to traders’ notes, selloffs on Federal Government of Nigerian (FGN) bonds pushed yields to 13.5% following pressures on the financial system liquidity.

It was noted that liquidity pressures drove short-term rates in the money market higher last week, widening the average interbank record which has stayed at a double-digit high further.

Data shows that the overnight lending rate increased by eight basis points as of Friday’s close.

In its market note, Cordros Capital traders highlighted that the average system liquidity level settled lower but remained positive at a net long position of N113.17 billion versus a net long position of N182.97 billion in the previous week.

In the new week, traders said they expect the overnight rate to trend northward as the thin inflow from OMO maturities worth N10.00 billion may not be sufficient to keep system liquidity afloat.

In the Treasury bills market, Cordros stated that the bears dominated the proceeding in the space as market participants exited positions to provide some respite to their funding obligations.

Consequently, the average yield across all instruments expanded by 17 basis points to 7.9%.

However, across the segments, traders said the average yield dipped by 2bps to 10.3% at the OMO bills secondary market, while most of the yield expansion was witnessed at the Nigerian T-Bills segment.

Given the tight liquidity picture, analysts said they still expect the average yield on T-bills to maintain its uptick in the new week.  Market analysts are expecting quiet trading at the NTB market as participants’ position for the CBN auction with NGN190.89 billion worth of maturities on offer.

In the just concluded week, sentiment remained negative in the market as bond prices got depressed while FGN yields expanded for most maturities tracked.

Specifically, investors in the secondary market were relatively more bearish at the shorter end of the curve than at the longer end, Cowry Asset Management said in a note.

The 10-year, 16.29% FGN MAR 2027 debt, the 15-year, 12.50% FGN MAR 2035 bond, and the 20-year, 16.25% FGN MAR 2037 debt papers lost N2.31, N2.90, and N0.38, respectively. READ:Bond Yield Rises, T-Bills Sees Buying Interest as Naira Falls

These bond instruments corresponding yields rose to 13.73% (from 13.07%), 13.98% (from 13.46%), and 15.33% (from 15.27%), respectively. The 30-year, 12.98% FGN MAR 2050 instrument debt remained unchanged.

Elsewhere, the value of FGN Eurobonds traded in the international capital market appreciated for most maturities, according to Cowry Asset Management analysts.

The 10-year, 6.375%, July 12, 2023 bonds, the 20-year, 7.69% paper due on February 23, 2038, and the 30-year, 7.62% debt due on November 28, 2047, gained USD 1.73, USD 4.41, and USD 4.58, respectively.

The Eurobond’s corresponding yields fell to 8.41% (from 10.78%), 13.51% (from 14.54%), and 13.07% (from 14.12%), respectively.

Projecting into the new week, analysts said that they expect the value of FGN Bonds to increase (and yields to fall) amid increased demand due to the maturing bills in the money market…

“We maintain our stance of an uptick in yields in the medium term as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply level over the rest of the year”, Cordros Capital added.

# T-Bills Yield Inches Near 8%, Bond Rises to 13.5%#