TB yield inches higher despite investors’ inflation worries


By Kayode Tokede

Treasury Bill (TB) yields inched higher on Wednesday amid inflation rate worries by investors. After two months of consecutive decline in headline inflation, the market is expecting figures for June to drop due to low base effects.

Trading in the TB secondary market was bearish, as the average yield expanded by 17 basis points to seven per cent.

Across the benchmark curve, the average yield expanded the short (+6 basis points), mid (+38 basis points) and long (+17 basis points) segments due to sell-offs of the 92 days to maturity (+34 basis points), 183DTM (+42 basis points) and 246 (+48basis points) bills, respectively.

In the money market, the overnight lending rate contracted by 450 basis points to 14.5 per cent in the absence of any significant funding pressures on the system.

At the primary market auction, PMA, the Central Bank CBN offered N109.43 billion for sale with total subscription of N574.68 billion.

Accordingly, the CBN allotted N5.24 billion for the 91-day, N7.60 billion for the 182-day and N137.30 billion for the 364-day bills – at respective stop rates of 2.50 per cent (previously 2.50 per cent), 3.50 per cent (previously 3.50per cent), and 8.67 per cent (previously 9.15 per cent).

Elsewhere, the average yield at the OMO segment contracted by 23bps to 9.5 per cent. The Treasury bond secondary market was bearish, as the average yield expanded by 3bps to 11.7 per cent.

Across the benchmark curve, the average yield expanded at the short (+4 basis points), and long (+5 basis points) ends due to sell-offs of the JAN-2022 (+39 basis points) and MAR-2035 (+10 basis points) bonds, respectively.

Conversely, the average yield pared at the mid (-2 basis points) segment due to demand for the FEB-2028 (-10 basis points) bond.  Analysts had predicted that robust subscription level will keep rates tight as CBN holds Auction.

At the previous PMA, average stop rate declined further to 5.03per cent from 5.13per cent driven by a decline on the rate offered on the 364 day instrument (to 9.15 per cent from 9.40 per cent).

Rates on the short (91-Day) and medium (182-Day) term instruments remained unchanged at 2.50 per cent and 3.50per cent respectively.

However, analysts at Meristem Securities said they expect a further moderation in the rate on the 364-Day instrument, due to sustained robust investor appetite.

“This is in addition to further pressure on debt service charge arising from the need to finance the deficit in the N982.84billion supplementary budget approved by the National Assembly last week,” analysts added.

The investment firm hinted that the sentiment in the secondary market has been largely bullish since the last auction, as investors turned to the secondary market to fill unmet demand at the PMA (especially on the long end of the curve).