Rates rise seen ahead CBN auction as traders sideline T-bills, Tuesday

BY CHARLES ABUEDE

Fixed income analysts at Meristem Securities income analysts have said they expect rates to go up across all instruments on offer ahead of the Central Bank’s Primary Market Auction on Wednesday after traders placed unimportant attention on the treasury bills on Tuesday following the flattish close of the market on Tuesday.

The analysts noted that marginal rates are expected to rise on the 91-day instrument relative to other instruments on offer.

“We note that the level of liquidity this quarter – feeding off incoming maturing bills and coupon payments – compared to the previous quarter has declined. We also consider that the government is willing to raise higher amounts than it did in the preceding quarter, thus making a compelling case for an increase in stop rates.

“In our opinion, [the] federal government is more tilted towards the medium and long term instruments. The government’s perceived preference for these instruments is indicative of increased pressure of high debt burden on government finances which is not expected to ease off any time soon,” the Meristem analysts said.

On Wednesday, the CBN is expected to conduct the Primary market auction to roll over Nigerian Treasury bills maturities worth N141.26 billion across 91-day (N2.19 billion), 182-day (N6.95 billion), and 364-day (N132.12 billion) tenors respectively.

However, it was a flattish close on Tuesday at the treasury bills secondary market as the average yield across the curve remained unchanged at 3.35 percent. And the average yields across the short-term, medium-term, and long-term maturities remained unchanged at 2.69 percent, 3.05 percent, and 3.92 percent, respectively.

In the foreign exchange market, the naira gained N0.37 against the dollar day-on-day at the Investors’ and Exporters’ Window (I&EW) to settle at NGN416.63 per dollar from the last close of N417 for the greenback as most market participants maintained their bids between N410 and N444 per dollar..

Further into the money market, system liquidity declined by 12.89 percent to settle at N166.22 billion from a previous close of N190.81 billion as the Open Buy-back and Overnight rates dipped to 5.25 percent and 5.63 percent from 7.67 percent and 8.25 percent on the previous close respectively.

Analysts at FSDH Capital have, however, said the money market rates are likely to remain subdued, barring any mop-up activity by the CBN.

Elsewhere, in the bond market, bearish sentiment pervaded the space despite the mixed sentiments seen majorly at the mid-end of the curve and as a result, the average bond yield across the curve cleared higher by one basis point to close at 10.99 percent from 10.98 percent on the previous day. Average yield across the long tenor of the curve expanded by two basis points, while the average yield across the short tenor of the curve declined by one basis point.

However, the average yield across the medium tenor of the curve remained unchanged. The 18-APR-2037 maturity bond was the best performer with a decrease in the yield of 11 basis points, while the 21-JAN-2042 maturity bond was the worst performer with an increase in the yield of 21 basis points.

Also, the OMO bills market saw the average yield across the curve close flat at 3.42 percent. Average yields across short-term, medium-term, and long-term maturities remained unchanged at 3.01 percent, 3.37 percent, and 3.93 percent, respectively.