Analysts Predict Drop in T-Bill Yields as Liquidity Improves Ahead of CBN Auction

As Nigeria prepares for its Treasury Bill (T-Bill) auction on Wednesday, analysts expect a decline in yields due to improving liquidity conditions, which are easing pressure on short-term borrowing costs. Recent inflows from maturing securities and FAAC allocations are providing liquidity to the market, reducing the need for the Central Bank of Nigeria (CBN) to offer higher yields. Gbolahan Ologunro, a portfolio manager at FBNQuest, pointed out that the CBN faces a higher maturity of N1.18 trillion compared to the amount offered, contributing to this liquidity boost.

At recent auctions, demand for one-year Treasury bills has been weak, despite the CBN’s attempts to increase yields. The bank’s surprise auction last Wednesday saw an increase in yields to 24.90%, up from 22.52%. However, liquidity constraints are still being felt, and the demand for these bills remains lackluster. This trend is expected to persist as market liquidity continues to recover.

On the other hand, Joseph Joshua, a fixed-income analyst at CSL Stockbroker, highlighted a supply-demand imbalance due to the N700 billion on offer in today’s auction being lower than the N1.18 trillion in maturities. This could push yields down further as market sentiment adjusts. Despite this, analysts from Meristem forecast a marginal increase in rates, attributing it to persistently low system liquidity and ongoing government budget deficits, which may force the CBN to raise yields to attract foreign investment.

With N700 billion to be offered across various tenors in today’s auction, the outlook for T-Bills is mixed. Analysts suggest that while the 91-day rate may hold steady, there could be a slight increase in the 182-day and 364-day tenors. As the government seeks to bolster foreign inflows and stabilize the foreign exchange market, maintaining attractive yields will be crucial. However, the overall trend points to a softer approach due to improved liquidity conditions in the market.

source: business day