Average yield on Nigerian Treasury Bills ,NTB, climbed by 68 basis points as deposit money banks, and other authorised dealers in the fixed income market reduced their holdings amidst spot rates adjustment expectations.
Supporting the bearish trade was tight liquidity level in the financial system that forced some authorised dealers to sell down Treasury bills holdings. Analysts said some local deposit money banks trimmed their holdings for cash to close liquidity gap as rate on the Central Bank of Nigeria ,CBN, standing lending facility jerked up.
Still, banks liquidity conditions differ as some cash rich commercial banks started requiring high rates on their excess funds.
The financial system liquidity stayed negative following significant outflow for Treasury bills auction sales by the apex bank. Consequently, the Open Repo Rate ,OPR, increased by 631 bps to 31.50%, while the Overnight Rate ,O/N, increased by 610 bps to 31.92%.
Fixed interest securities rebalance portfolios as part of efforts to optimise returns in the face of high inflation conditions. Although, inflation rate pressure is expected to ease in June, based on analysts’ consensus, high spot rates pricing is unlikely in the short term, analysts said.
Investors’ sentiment has been mixed due to robust liquidity access even with a negative interest yield and the huge gap between inflation (33.95%) and the benchmark interest rate (26.25%).
In its market update, Cordros Capital Limited told investors that the average yield pared at the short (-1bp) and mid (-1bp) segments. Analysts attributed the yield contraction to investors’ interests in the 86-day to maturity, causing its yield to dip by 1bp.
The market also registered additional demand in the belly of the curve. The Treasury instrument, with a 177-day to maturity experienced rally that dragged its yield down by -1bp. Conversely, the average yield expanded at the long (+3bps) end, driven by the selloff of the 324-day to maturity (+44 bps) bill. Meanwhile, the average yield declined by 2 basis points to 23.4% in the OMO segment.
Overall, the Treasury bills market had a mixed to bearish theme today, driven by tight liquidity and mild demand for long dated papers. As a result, the average mid-rate increased to 21.15% from 20.47% yesterday, AIICO Capital Limited said.
