Inflation-adjusted yields lure investors to long ​ maturity T-bills

Inflation-adjusted yields lure investors to long ​ maturity T-bills

Investors staked 166.3 billion on 364-day maturity bills yesterday, N40 billion naira more than Nigeria’s central bank offered as yields on the one-year bills, at 18.55 per cent, rose higher than inflation for the first time in over two months.

Prior to the latest auction on Wednesday, the Central Bank of Nigeria (CBN) had been selling bills at yields below the inflation rate in a bid  to restrain borrowing costs as it strives to finance half of the 2.36 trillion naira ($7.50 billion) forecast budget deficit of for 2017 through local borrowing. The national bureau of statistics (NBS) had reported that the country’s year-on-year headline inflation moderated to 17.78 per cent in February, from 18.72 per cent which it was in January this year.

“The CBN has continued to conduct open market operation (OMO) auctions around the long end of the T-bills curve selling at 18.6% at the 314 to 360 day maturities to mop up liquidity from the banking system to discourage speculation in the FX (foreign exchange) markets, especially with the recent Special Wholesale Intervention Sales of FX,” said a bond trader with Planet Capital Limited, a Lagos-based investment firm, in a mailed response to questions.

The Nigeria treasury bills (NTB) auction and the volume of demand at the long end, which reached N176 billion gave the CBN the respite from higher asking rates at the OMO market while simultaneously mopping excess liquidity that will come from expected inflow of maturing Treasury and OMO bills, the trader said.

The CBN said on Thursday it had sold more treasury bills than originally planned at an auction after it lured demand for one-year debt with yields above inflation.

The bank raised 253.8 billion naira at an auction on Wednesday, 40 billion naira more than it had offered to sell.

The debt management office (DMO) also said that it issued more bonds on Thursday than it originally planned at an auction after slowing inflation rate helped it offer debt at lower yields.

Analysts at Cordros Capital and investment management firm based in Lagos, said in its daily market update to investors that average yield in the treasury bills market rose by 3 basis points yesterday to 16.71 per cent.

Proceedings in the treasury bills market ended on a bearish note, the update said.

The CBN raised 166.3 billion naira by offering a yield of 18.55 per cent for bills maturing in one year, 0.8 percentage points more than February inflation rate; it offered a yield of 18.49 per cent at its previous auction, 0.23 percentage points below the inflation rate at that time.

The bank raised N48.5 billion from the six-month bills issued at a yield that was unchanged from the previous auction at 17.20 per cent; it raised N39.0 billion by selling three-month bills at 13.60 per cent yield, lower than 13.65 per cent yield offered investors for the same instrument at the previous auction.

Investors craved for N216.38 billion worth of bills as against N312.44 billion bills they demanded at the last sale.

Cordros Capital said that the money market overnight rate dropped by 1.09 percentage points to close at 12.33 per cent. Overnight rate as at Wednesday closed at 13.42 per cent.

 

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