Asset Managers Unpack Nigeria TBills Despite Liquidity Boost

The benchmark yield climbed as wealth, asset managers unpacked Nigerian Treasury bills in reaction to an indefinite postponement of the monetary policy committee meeting despite a surge in liquidity level in the financial system.

As a result, the fixed income securities market ended on a bearish note last week with loud sell pressure across the tenor ahead of a monetary authority’s plan to refinance maturing bills on Wednesday by the apex bank.

Nigeria’s high inflation rate has eroded real return on naira asset investment in the local debt capital market while the government borrows from market participants at below market rates.

Fixed interest securities investors often gauge market direction with the outcome of the monetary policy committee decision, which is often based on key market developments like inflation, liquidity and exchange rate position among other considerations.

At the close of business on Friday, the average yield on Nigerian Treasury bills climbed the curve amidst growing uncertainties ahead of the Central Bank of Nigeria’s (CBN) primary market auction scheduled for midweek.

Fixed income securities analysts said they witnessed selloffs spotted in the secondary market despite a surge in liquidity in the financial system. As a result of healthy financial system liquidity, the pressures on money market rates receded. It was noted that the development was supported by inflows from SURE-P refunds and FGN Bonds coupon payments that hit the system last week.

In its market report, Cordros Capital Limited told Investors that inflows from the Federal Government of Nigeria SURE-P refunds worth about N300.00 billion boosted liquidity position.

There was also an additional inflow of funds coming from FGN bond coupon payments totalling N134.70 billion.  The combined amount saturated the system and supported the financial system liquidity, dragging short-term benchmark interest rates downward.

Both open repo and overnight lending rates dropped to single digits lower as a result, with the average system liquidity closed at a net long position of N109.42 billion. This was an upturn position when compared with a net short position of N273.74 billion from the previous week.

Data from FMDQ confirmed that the overnight lending rate declined significantly by 21.12 percentage points week on week to 3.3%.

“We expect the OVN rate to remain depressed next week as we believe the expected inflows from FGN bond coupon payments worth N202.34 billion will likely keep the system afloat”, Cordros Capital said in its report.

Treasury bills

Trading activities in the Nigerian Treasury bills secondary market ended this week on a bearish note as the average yield across the market expanded by 46bps to 8.7%. Notably, demand for instruments remained weak despite the improved liquidity position as market participants reacted negatively to the CBN postponing this month’s MPC meeting, Cordros Capital said.

Across the market segments, analysts noted that the average yield advanced by 48 basis points to 8.5% in the NTB secondary market and increased by 12 basis points to 13.4% in the OMO segment.

“We anticipate lower yields in the Treasury bills secondary market as we believe the expected inflows into the financial system will drive demand”, traders said in the note. In addition, the CBN is scheduled to hold an NTB PMA on Wednesday where it will roll over maturities worth N177.12 billion.

The refinance treasury bills would be split across the 91-day, 182-day and 364-day tenors at the next primary market auction. #Asset Managers Unpack Nigeria TBills Despite Liquidity Boost Naira Devaluation Deepens Economic Crisis in Nigeria
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