Yield Rises as Banks Sell Treasury Bills to Boost Liquidity
The average yield on Nigerian Treasury bills rose further on Tuesday after local deposit money banks (DMBs) facing liquidity pressures unpacked a portion of their investment securities holdings to boost their positions.
Likewise, some fund managers also moved to rebalance holdings following higher spot rates at the apex bank primary market auction. By market consensus, the spot rates re-pricing trend is expected to continue due to changing market dynamics.
Money pricing was altered by the monetary policy tightening that saw the benchmark interest rate hike to 18% after more than two years of a dovish stance in a bid to support real growth in the economy.
In the money market, financial system liquidity opened the week with a positive balance of ₦89.32 billion. To support daily liquidity demand, banks sold their interest, thus lifting the yield curve higher while prices declined.
However, withdrawals worth ₦215.61 billion by deposit money banks at the standing lending facility (SLF) window of the central bank (CBN) submerged the system into a deficit of ₦124.67 billion, according to TrustBanc Capital Limited.
Accordingly, analysts revealed that funding rates repo and overnight lending rates inched higher to close near market cap levels – 18.63% and 19.00%, respectively.
“In the absence of any major inflow, we believe system liquidity will maintain its deficit run, while funding rates remain elevated”, TrustBanc said in its market brief.
Traded with bearish sentiments, as the average yield on Treasury bills expanded by 68 basis points to 8.8% in the secondary market.
Across the curve, analysts at Cordros Capital told clients via email that the average yield expanded at the short (+45bps) and long (+46bps) ends.
This occurred following the selloffs of the 44-day to maturity which gained 179 basis points. Investors also sold 352 days to maturity in what appears to be an early exit, thus its corresponding yield popped up 13.12 percentage points.
Conversely, the average yield pared at the mid, lower by a basis point, segment as market participants demanded the 149-day to maturity, with the associated yield down by a basis point.
Elsewhere, the average yield was unchanged at 4.0% in the open market operations (OMO) bills segment. Trading activities in the bond market were quiet, as the average yield closed flat at 13.5%.
Across the benchmark curve, the average yield was flat at the short and mid segments but expanded slightly at the long (+1bp) end due to profit-taking activities on the APR-2049 (+4bps) bond. #Yield Rises as Banks Sell Treasury Bills to Boost Liquidity