Market News
One-year T-bills yield rises as DMO, investors seek comfortable levels - BUSINESSDAY
In a surprising turn of events, the yields on the one-year treasury bill (T-bills) inched up by 0.6 percent to 19.76 percent at the primary auction on Wednesday, as the Debt Management Office (DMO) and investors battle for comfortable levels for yields.
The climb in yields is a detour from the past five auctions, where yields on the one-year bill have been on a consistent decline. Yields on the one-year have dropped to 19.76 percent from 29 percent at the beginning of the year.
“The tick up in yield is as a result of the battle between the Debt Management Office (DMO) and investors on where they are individually comfortable with yields,” said Olaolu Boboye, head of research at CardinalStone, an investment bank.
Boboye explained that due to this tussle between investors and DMO, yields on one-year T-bills are likely to stay at 19 percent by the end of the year and at 15-16 percent for bonds.
While the long-dated bill saw an uptick in yield, the 91-day and 182-day bills remained the same at 15.59percent and 16.80 percent, respectively.
Analysts at Meristem had projected an uptick in yields ahead of the auction as a result of tight liquidity.
“In tomorrow’s auction, we expect a slight uptick in stop rates across the trio maturities. We note the significant liquidity mop-up, following Tuesday’s Open Market Operation (OMO) auction,” it said in the report.
They further explained that aside from the tight liquidity, investors are unwilling to bid at a lower price than the secondary market level at the primary auction.
“The one-year bill is currently trading at 16 percent in the secondary market, and we envisage that investors may be reluctant to bid at rates lower than this level. Also, this outlook is supported by the government’s net borrowing position of NGN289.74bn at the auction,” it said in the report.
The decline in yield across the market and inflation rate so far has been a signal for a likely rate cut later in the year.
At the auction on Wednesday, a total of N220.00 billion was offered across the standard three tenors – N60.00 billion in 91-day bills, N20.00 billion in 182-day bills, and N140.00 billion in 364-day bills.
The CBN allotted N173.24 billion across the three maturities, less than it put up for sale.
The 365-day bill accounted for 80 percent of total sales and subscriptions, amounting to a sale of N139.59 billion of the tenor.
The 81-day bill saw the lowest demand and sales of all tenors, with only N20.87 billion subscriptions and even lower sales of N18.3 billion.
