DMO to re-issue N230bn NTBs as yields rise

By Chinwendu Obienyi

The Debt Management Office (DMO) is scheduled to re-issue N230 billion worth of Nigerian Treasury Bills (NTBs) at the next primary market auction on Wednesday, August 20, as the government seeks to refinance maturing obligations amid shifting yield dynamics in the fixed income market.

This comes as the secondary market for Treasury bills traded on a muted note last week, reflecting a bearish undertone. The average yield across all tenors rose marginally by 1 basis point (bp) week-on-week (w/w) to 21.4 per cent. The NTB segment recorded a 4bps increase in average yield to 18.0 per cent, while the Open Market Operations (OMO) segment saw yields decline by 2bps to 24.6 per cent.

Market analysts say the recent upward movement in NTB yields reflects weak demand amid tighter liquidity conditions. However, system liquidity is projected to improve in the days ahead due to expected FAAC disbursements and potential inflows from maturing instruments, which could revive investor appetite for short-term government securities.

“We expect stronger demand at the upcoming auction as liquidity conditions ease,” said a fixed income trader at a Tier-1 bank. “That could support a moderation in stop rates, particularly in the mid- and long-tenor NTBs.”

At the last NTB auction held on August 6, the DMO raised N230 billion as well, offering N1.5 billion, N3.0 billion, and N225.5 billion across the 91-, 182-, and 364-day tenors respectively. Stop rates cleared at 16.24 per cent, 17.00 per cent, and 19.89 per cent for the respective maturities.

Given current market conditions, traders anticipate a slight tapering in stop rates at this week’s auction, especially for the 364-day paper, which typically attracts the bulk of investor interest. “With improved liquidity and the attractive risk-adjusted returns offered by T-bills, we should see more aggressive bidding from pension funds and asset managers,” another analyst noted.

The Central Bank of Nigeria (CBN) has maintained a tight monetary stance in recent months to anchor inflation expectations and support the naira. As a result, short-term rates across the curve have remained elevated. Nonetheless, analysts note that the high yield environment still presents opportunities for investors seeking to hedge against inflation and currency volatility.

The NTB auction will be closely watched by market participants as an indicator of short-term borrowing costs and investor sentiment heading into the final quarter of the year.