Banks Sell Treasury Assets to Support Liquidity

In the secondary market, the average yield on Nigerian Treasury bills shifted upward as the rising headline inflation rate widened negative real return in the fixed interest securities.

Nigeria’s deposit money banks commenced fresh Treasury bills sales in the market as the liquidity level in the financial system slumped. In recent times, there have been notable buying activities on instruments as investors continued their hunt for attractive returns.

In line with analysts at TrustBanc Capital projection, FGN bond auction settlement worth ₦542.26 billion pushed the system into a deficit close of ₦201.38 billion. Local lenders had earlier in the week commenced fresh borrowing from the Central Bank of Nigeria’s (CBN) standing lending facility to support liquidity requirements.

The tightened funding pushed short-term benchmark interest rates higher, data from FMDQ Exchange tracked by MarketForces Africa show. Accordingly, funding rates (repo and overnight lending rate) surged by about 450 basis points to close at 17.88% and 18.25%, respectively.

“Barring any significant inflow immediately, we expect funding rates to stay elevated”, TrustBanc Capital Limited said in a note to investors.

As buying temperature cool down, the Nigerian Treasury bills secondary market traded on a relatively bearish note, as local banks offloaded short-dated maturities to cover the funding gap.

Based on the record book, fixed income traders said the Sep-2023 bill recorded the sharpest jump in yield, rising by+83 basis points yesterday, as offers seemed concentrated on the near-ended curve.

At the close of the trading session, the average benchmark yield nudged higher by 11 basis points to close at 6.59%, traders stated.