The Nigerian financial market will be awash with liquidity this week to the tune of N549.4 billion from maturing Treasury Bills and Open Market Operation (OMO) with attractive yields and analysts say they see investors taking position to reap returns.
A breakdown of the system liquidity shows that the Central Bank of Nigeria (CBN) will on Wednesday roll over N158.7 billion worth of maturing T-Bills at the Primary Market Auction. This consists of N15.00 billion for 91-day tenor, N14.002 billion for 182-day tenor and N129.65 billion for 364-day tenor.
Also, inflows from maturing OMO bills worth N390.7 billion are expected to hit the system thereby bolstering system liquidity.
The expected stop rates for the maturing treasury bills range between 11.00-11.15 percent, 11.60-11.70 percent and 12.85-13 percent for 91-day, 182-day and 364-day tenors, respectively.
“We expect the CBN to maintain its pace of excess liquidity mop-ups to keep system liquidity in check. Investors are therefore advised to take position in T-Bills and OMO offers with attractive yields,” analysts at Afrinvest Securities Limited said.
The yield for short-term bills offered by some investment firms as at Monday ranged between 10.31 and 10.47 percent per annum. For medium-term instruments, the yield ranged between 12.01 and 12.32 percent, while the yield for longer-term bills stood at between 13.47 and 13.71 percent per annum.
Yield refers to income realised on an investment over a particular period of time, while stop rate refers to the maximum interest rate preferred/issued by the CBN out of all the bids submitted within a bid window.
Last week saw further increase in demand in the Treasury Bills secondary market as system liquidity remained elevated at about N862.2 billion positive as at Thursday, amidst the OMO auction that was conducted by the apex bank on the same day.
Although system liquidity opened the week negative N68.0 billion spurring sell-offs, liquidity from matured OMO bills bolstered demand across the yield curve during the remaining trading sessions of the week.
Consequently, yields remained pressured as average yield across tenors dipped further by 51bps Week-on-Week to settle at 13.3 percent on Friday from 13.8 percent the previous week. Major buying interests were witnessed at the short and medium end of the curve, particularly 24-Oct-19 (-126bps), 10-Oct-19 (-126bps) and 12-Dec-19 (-111bps) maturities.
Last week Thursday, the CBN mopped up a total of N322.6 billion out of the initial N400 billion offered to investors via OMO auction.
Investors scrambled for the longer-tenor instrument as the 364-day tenor OMO bill was oversubscribed by 63.25 percent. The initial offer for this tenor was N250 billion while the total subscription stood at N408.12 billion.
The CBN sold a total of N321.48 billion (364-day) at a stop rate of 13.50 percent. The investors bid at a range bid of between 13.49 and 14.50 percent for the offer which matures on September 3, 2020.
At the Bond market last week, the bullish run in the FGN bonds market was reversed as investors sold off on their medium and long positions to take advantage of anticipated attractive rates at the OMO auctions. Thus, average yield across all instruments closed at 14.2 percent from 14.0 percent the previous week improving 20bps W-o-W. Major sell-offs were witnessed at the 12-Sep-20 (+129bps), 20-Sep-20 (+126bps) and 10-Oct-20 (+117bps) maturities.
“We expect to see tapered demand within the bond market on the back of bargain hunting as investors may take advantage of long-term OMO offerings with attractive rates. Investors are therefore advised to take advantage of bonds with attractive yields and trading at a discount,” the analysts said.
