Treasury Bills Yield Steadies as Banks Halt Selling
The average yield on Nigerian Treasury bills (NTB) traded on a quiet note, albeit, with a bullish tilt following a thin transaction in the secondary market. With unimpressive return on naira assets, sustain rise in Nigeria’s headline inflation rate expose investment in treasury market to downsides.
The yield curve recently made an upward shift amidst money pricing dynamics and Nigerian banks’ need for short-term cash that triggered investment securities sales in the secondary market. For the local lenders, it has been a combination of bills selling and borrowing from the CBN window.
However, after pitching tents at the apex bank standing lending facility (SLF) to raise N4 trillion at a monetary policy rate plus 100 basis points in April, Nigerian banks have halted selling part of their holdings as liquidity in the financial system improves.
Consequent to a robust funding profile, the Nigerian interbank offered rate fell across the board for all maturities as money market stress eased and banks with liquidity demanded lower rates, according to Cowry Asset Management Limited.
Data from the FMDQ Exchange platform show that short-term benchmark rates, such as the open repo rate, remained unchanged at 11.00%, while the overnight lending rate (OVN) climbed to 11.50% (from 11.38%).
Generally, the fixed income market kickstarted the second quarter with fresh rallies, and spot rates have declined after intermittent market rate repricing. A pocket of demand was seen on long-dated treasury bills but not so much to drag yield lower significantly.
For the most part of April, liquidity drought kept yields elevated, as local banks sold their short-dated bills to cover the liquidity gap.
In the same vein, stop rates at the first primary market auction conducted by the central bank in April were allotted at 14.7%, 8% and 6% levels for the 364, 182 and 91-day bills.
However, improved liquidity conditions at the tail end of the month pulled rates significantly lower, especially on the 364-day bill which declined by 453 basis points in April.
Traders reported that unmet bids at the CBN auction filtered into the secondary market, which sent rates across the curve south. Then, the average yield declined by 137 basis points to close at 6.67% in April.
On Wednesday, TrustBanc Capital told investors that paltry bids were consummated at the mid to long ends of the curve in the secondary market. Thus, the average benchmark yield held firm at 6.67%.
Treasury traders at the investment firm said the 364-day Nigerian Treasury bills yield closed flat at 8.81%. “In the near term, we expect this trend to persist”, TrustBanc Capital said.
