Nigeria_Fixed Income Daily: Lower auction rate buoys demand in the T-bills market

Market commentary

• Despite the relatively unchanged level of system liquidity (N217 billion), interbank placement rates across all tenors declined 89bps on average. Particularly, the Call rate declined 203bps to 5.3%. At the FX interbank market, the Naira appreciated 14 kobo to NGN198.91/USD after recording an intraday low of NGN199.16/USD.

• As expected, activity in the T-bills market turned upbeat in today’s trading session as yields declined c.33bps on average across the traded maturities. Buying momentum was largely weighted across the short-mid dated bills as market reacted to yesterday’s auction results which came in lower than secondary market levels. The most notable yield declines were recorded on the 28DTM (+89bps), 49DTM (+82bps), and 105DTM (75bps) bills - closing at 6.13%, 5.75%, and 6.66% respectively. Similarly, demand strengthened in the bond market - particularly across the short-mid dated maturities, as yields moderated 8bps on average across all maturities. Notably, yield on the 15.10% FGN APR 2017 and 16.00% FGN JUN 2019 bonds declined 18bps and 17bps to 9.50% and 10.57% respectively.
• Notwithstanding the demand in today’s session, we still see room for further adjustment to the auction result particularly at the short end of the yield curve. Whilst this presents a case for further yield compression in the next trading session, we think there could be a slowdown in momentum as investors begin to eye the MPC meeting scheduled for next week.