Nigeria: Liquidity Boost and T-Bills Yield Increase as CBN Conducts Auction

In anticipation of the upcoming midweek primary market auction for Treasury bills rollover by the Central Bank of Nigeria (CBN), there has been an improvement in liquidity within the financial system. The CBN is set to roll over maturing treasury bills worth N153.99 billion on Wednesday. Despite strong liquidity conditions in the financial system, expectations remain for improved rate pricing.

The maturing treasury bills will be divided into 91-day bills worth N4.52 billion, 182-day bills worth N1.31 billion, and 364-day bills worth N148.15 billion. During its last auction in July, the CBN adjusted Treasury bill rates higher in line with its sustained monetary policy tightening.

During the auction, subscription offers for instruments worth N264.33 billion were made. However, the surge in liquidity levels in the market has raised concerns about the potential spot rates pricing for the auction sales.

Short-term benchmark rates witnessed a notable decline due to a lack of market pressures. Market data indicates that system liquidity increased from ₦199.54 billion to ₦296.99 billion on Tuesday. Consequently, the open repo rate (OPR) dropped by 315 basis points to 2.75%. Additionally, the overnight lending rate (OVN) plummeted by 520 basis points to 2.4%.

Cordros Capital’s market update highlighted that trading activities in the secondary market closed with bearish sentiments, causing the average yield to expand by 30 basis points to 7.3% on Tuesday.

According to Futureview’s update, the Treasury Bills market experienced a slightly bullish trend, with demand particularly notable for the 25-July-24 bill, trading at around 9.00% levels.

Analysts in the fixed income market noted that the average yield remained unchanged at the short and mid segments but expanded at the long end (+27bps). This expansion was attributed to the selling-off of the 338-day to maturity bill, which increased by (+10.19ppts).

Similarly, trading activities in the Federal Government of Nigeria (FGN) bond secondary market leaned bearish, causing the average yield to increase by 13bps to 13.5%. Across the benchmark curve, the average yield witnessed an increase at the short (+20bps), mid (+17bps), and long (+8bps) segments due to selling pressures on the MAR-2025 (+110bps), APR-2032 (+37bps), and JAN-2042 (+47bps) bonds, respectively.