Nigeria’s Debt Management Office (DMO) prioritises bond sales over treasury bills, resulting in the issuance of N384 billion worth of T-bills, less than it had offered on Wednesday.
“It appears that the DMO is now favouring bond sales, which offer a longer liability spread over overselling T-Bills that mature within a shorter period. Essentially, the DMO is applying a matching principle by aligning their funding strategy with longer-term obligations, minimising short-term refinancing risks,” Matilda Adefalujo, fixed income analyst at Meristem Securities, said.
The DMO, through the Central Bank of Nigeria (CBN), rolled over a total of N409.97 billion across the 91- 182- and 364-Day tenors and sold only N384.93 billion.
Only N197.1 billion worth of one-year treasury bills was sold despite being oversubscribed to the tune of N909.5 billion.
The subscription was three times more than the N283 billion that was offered.
On Monday, at the Bond auction, the DMO sold a total of N374.75 billion FGN bonds, almost double its N190 billion offer as investors continued to lock in for long dated bonds against projected dip in rates .
Adefalujo said that the oversubscription observed at the TBills auction yesterday reflects robust system liquidity and investor expectations of slightly higher rates.
On Wednesday, the yield on the one year bill dropped to 26.42 percent from 28.01 percent at the previous auction.
Read also: Investors snatch long-term bonds as DMO raises N374.75bn
The auction saw a downward move in stop rate to 20.9 percent from 21.89 percent in the previous auction for the one year bill.
while for the 182-day and 91-day bills, stop rates dropped by 0.3 percent respectively to 19.08 percent and 21.25 percent respectively.
Samuel Gbadebo, fixed income analyst CardinalStone said that the decline in stop rates, particularly the 364 paper by 99bps and poor allotment of the paper indicates lower rates in the future and investors trying to buy ahead.
“It’s safe to assume that supply going forward might reduce and at even lower stop rates, hence the oversubscription for the 364-day paper,” he said.
Last month, the Monetary Policy Committee increased its rate by 50 basis points to 26.75 percent from 26.25 percent to fight Nigeria’s stubbornly high inflation.
This was met with an increase in the yield and stop rates of NT-bills, at the auction just after the hike to 28.36 percent and 22.1 percent respectively.
However the recently released data for July inflation showed a decline in headline figure to 33.40 percent putting fears of a further interest rate hike away.
The two subsequent auctions after this have seen yields decline and faster at Yesterday’s auction.
Though the yields on T-bills are beginning to drop Oluwamayowa Ogbebor, fixed income analyst at ARM Holdings explained that investors are still very much interested in it.
“ It’s nothing but the Yield, because we’ve seen Treasury bill rates surge over time, investors typically move their funds to safe assets selling down equity portfolios to take advantage of the high rates in fixed income to taper down impact of inflation on investments,”
“Banks, fund managers, Asset managers and typical investors are trying to taper down the effect of inflation on their portfolios by taking advantage of the high yields,” Ogbebor said.
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