Absence of inflow, liquidity squeeze may hamper investors’ demand for T-bills

The expected increase in the demand for the Nigerian treasury bills (NT-Bills) by investors may be pressured as a result of liquidity squeeze occasioned by absence of any inflows into the financial market this week.

Analysts at Afrinvest Securities Limited expect to see more demand in the NT-bills space due to the unmet bids from last week’s Primary Market Auction (PMA).

Consequently, investors are advised to take advantage of the relatively attractive bills along the curve while also remaining alert for commercial paper offerings that might be announced.

Trading on the Nigerian Treasury Bills secondary market was relatively quiet last week as unattractive yields and limited supply of bills dragged activity all through the 3-Day week. Investors stayed on the sidelines, awaiting the Primary Market Auction that held on Wednesday. Consequently, average yield closed flat at 1.8 percent despite the healthy liquidity level of about N769.2 billion as at Wednesday.

 

A report by the firm showed that the 10-Sep-20 and 17-Sep-20 NT-Bill maturities witnessed mild buying interests, shedding 3bps and 5bps W-o-W, respectively. While the 15-Oct-20 (+10bps) and 01-Oct-20 (+3bps) bills witnessed slight sell-offs and other instruments across the curve traded flat.

The CBN rolled over a total of N266 billion across the 91-, 182- and 364-Day tenors at the PMA on Wednesday, which was followed by strong demand of N468.3 billion as all tenors were oversubscribed. Most demand was particularly recorded on the 182-day tenor, which had a 2.9x bid-to-cover ratio.

However, the apex bank only allotted the total amount offered. Though, average stop rates declined across the curve to 2.0% (-12bps).

At the bond market, the FGN bonds secondary market sustained its bullish trend last week, with demand trickling in from the quantum of unfilled bids at the primary bond auction. Strong buying sentiments were also observed on the back of relatively high system liquidity as well as bond coupon inflows. Accordingly, average yield across all tenors shed 20bps Week-on-Week (W-o-W) to close at 7.1% on Wednesday.

Most of the demand was noticed at the top and mid sections of the curve. Notably, the Mar-27, Feb-28, and the Mar-24 bonds were the most sought after; shedding 125bps, 69bps and 66bps, respectively, W-o-W.

“We expect sustained, albeit reduced buying interest due to expected lower levels of financial system liquidity. We however sustain our recommendation that investors cherry pick bonds with attractive yields across the curve,” the analysts said.

At the foreign exchange market, naira was unchanged at N474 per dollar on the black market on Tuesday. Though, it was quoted at N473 on the aboki FX from N475 last week.

Naira strengthens against the dollar at the retail Bureau where the dollar was traded at N474 on Tuesday from N475 traded last week.

The foreign exchange market opened with an indicative rate of N388.46k, which pointed to a marginal depreciation of N0.13k when compared with N388.33k opened with on the previous day at the Investors and Exporters (I&E) forex window, data from FMDQ revealed.