T-Bills Market Bullish Ahead of Feb Rate Hike Expectation

The average yield on Nigerian Treasury Bills declined as fixed income investors hedged against rising inflation by pooling more assets into their respective portfolios.  Ahead of the Central Bank bimonthly meeting, the market looks forward to monetary policy tightening. The hawkish pose could see the benchmark interest rate above 19%, from 18.75%.

According to data from the statistics office, headline inflation rose to 29.90% in January, 92 basis points above December 2023 consumer price index reading of 28.92%.

The latest inflation surge was driven by an increase in the food index after a naira devaluation. It has become evident that the interest rate may be lifted to curb Nigeria’s hot red inflation rate that has rubbished the CBN inflation-fighting efforts.

Reacting to the development, fund and asset managers reduced their treasury investment, causing prices to decline across short, mid and long-tenor instruments. Consequently, the average yield contracted by 20 basis points to 15.0%. In its market update, Cordros Capital Limited told investors that across the curve, the average yield declined at the short (-12bps), mid (-35bps) and long (-17bps) segments.

Traders attributed the decline to demand for the 28-day to maturity (-49bps), 175-day to maturity (-110bps) and 266-day to maturity (-49bps) bills, respectively. Elsewhere, the average yield pared by a basis points to 17.8% at the OMO bills secondary market segment as money market liquidity improved. This caused short-term benchmark interest rates to reduce.

Data from the FMDQ platform showed that the overnight lending rate contracted by 35 basis points to close at 15.1% on Thursday, in the absence of any significant outflow.  The open repo rate nosedived to conclude at 14.50%, investment banking firms said in their separate market reports reviewed by MarketForces Africa. BUA Reduces Cement Price, Plans Further Review
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