T-Bills Yield Crosses 5% after PMA Spot Price Action

The average on Nigerian Treasury bills crossed 5% in the secondary market after the Central Bank (CBN) oversubscribed primary market auction (PMA) last week, according to traders’ notes.

The apex bank refinanced N161.87 billion of T-bills that matured via the primary market at lower rates for most maturities as investors continued to demand short-term government debt.

At the Nigerian Treasury bills auction, the spot price on short tenored bills increased in what appeared to be a reversal of its previous price action. On the other hand, mid and long-dated Nigerian Treasury bills were priced down in contrast to previous hikes as liquidity conditions in the market tightened.

Speaking of funding profile, in the money market, short-term benchmark rates adjusted upward as liquidity level in the financial system faced pressures. The overnight lending rate expanded by 299 basis points week on week to 13.8%, as the debits for banking sector cash reserve ratio alignments offset N128.40 billion inflow from FGN bond coupon payments.

“We highlight that the average system liquidity this week settled at a net long position of N331.98 billion as against a net long position of N294.52 billion in the previous week. We note that last week’s average system liquidity does not reflect today’s CRR debits”, Cordros Capital said in a market brief.

Market participants reacted with selling rallies following the CBN auctions last week. In the secondary market, the Treasury bills secondary traded with bearish sentiments, as the average yield across all instruments expanded by 163 basis points to 5.2%.

Across the segments, analysts at Cordros Capital Limited told clients via email that the average yield increased by 173 basis points to 5.4% in the NTB secondary market but remained at 3.0% in the OMO bills segment.

At the CBN auction, the apex bank offered N161.87 billion or subscriptions as it seek to refinance maturing bills. This was split into N1.10 billion for 91 days, N918.38 million for 182 days, and N159.85 billion for 364-day –bills.

Analysts said demand at the auction was higher than the previous sales, as the total subscription level settled at N1.03 trillion, translating to a bid-to-offer settled at 6.4x with more interest on the longer-dated bills.

At the previous auction sales, total subscriptions for government bills came at N0.91 trillion. Auction results indicated that market participants/Investors seek to lock in N1.01 trillion to purchase 182-day and 364-day treasury bills at the CBN auction, translating to 97.6% of the total subscription.

The large bet allowed the apex bank to price down spot rates on the mid and long-dated bills. As CBN allotted the exact sum offered at the auction, stop rates for 182-day and 364-day bills moderated to 5.00% (from 6.00%) and 9.49% (from 10.00%), respectively.

However, the yield on 91-day bills rose to 2.66% (from 1.40%). “Given the expected tight liquidity in the system next week, we anticipate an increase in T-bills yields from current levels”, Cordros Capital stated.

Analysts said they believe the overnight rate will head northwards, as the outflows for FGN Bonds, and FX auctions will put further downward pressure on the financial system liquidity and offset the impact of the anticipated inflow from FGN bond coupon payments. # T-Bills Yield Crosses 5% after PMA Spot Price Action.