Selloffs Raise Yield on Nigerian Treasury Bills by 45bps

Sustained selloffs lifted the average yield on Nigerian Treasury bills by 45 basis points amidst rising concerns over inflation conditions in the local market. Investors risk off sentiment and market needs for liquidity drove selloffs during the midweek, causing yield to climb marginally.

Before pressure eased, the market had witnessed surge in short term benchmark interest rates in the money market, settling at average of 32%, according to data tracked on FMDQ Exchange.

Large coupon payment inflows on FGN bonds worth N145.98 billion saturated liquidity levels in the financial system, thus caused interbank rates to moderate.

In the money market, the open repo rate (OPR) and overnight lending rate (OVN) nosedived to 30.21% and 31.30%, respectively following a spike in liquidity in the system.

“The overnight lending rate contracted by 204 basis points to 31.3% following the inflow from FGN bond coupon payment totaling N145.98 billion”, Cordros Capital Limited said in a note to clients.

The sustained risk off sentiment in the fixed income market lifted yield curve. Investors continue to park cash in government borrowing instruments over attractive yields.

Changing market dynamics had caused yield to climb strongly, though there is 8.45% gap between benchmark interest rate (24.75%) and inflation rate (33.20%) in March, 2024.

In the secondary market, the average yield expanded by 45bps to 19.3%, Cordros Capital Limited told investors in its market update. Traders said across the curve, the average yield pared at the short (-1bp) and mid (-1bp) segments.

The yield contractions at short and belly of the curve was attributed to mild interest on the 84-day to maturity bills whose yield declined by -1bp. The market also recorded buying interest in 161 day to maturity bill, causing its yield to decline by -1bp.

Investors reduced their holdings at the end of the curve. As a result, yield expanded at the long (+91bps) end as participants sold off the 322 day to maturity bills – its associated yield rose by 305 basis points.  Elsewhere, the average contracted by 1bp to 18.5% in the OMO bills segment in the secondary market.

In the bond market, trading activities ended on a mixed note but with a bearish bias, traders said. The average yield increased slightly by 1bp to 19.2%. Across the benchmark curve, the average yield expanded at the short (+1bp) and mid (+3bps) segments.

The yield surge was due to profit-taking activities on the MAR-2027 (+1bp) and JUN-2033 (+10bps) bonds, respectively. Meanwhile, the average yield closed flat at the long end.