Nigeria’s fixed-income market is showing a clear shift in investor preference as strong demand for Treasury bills contrasts with growing caution toward longer-dated Federal Government bonds. The trend suggests that investors are increasingly favouring shorter-term government securities as they assess interest-rate and inflation risks in the market.
According to a report by Commercio Partners, investors subscribed N6.30tn at the Central Bank of Nigeria’s Open Market Operations auction last week, far exceeding the N1tn offered. Demand was also strong at the Debt Management Office’s Treasury bills auction, which attracted N2.64tn in bids. The heavy subscription pushed the average benchmark T-bill yield down by seven basis points week-on-week to 18.77 per cent.
The 364-day Treasury bill stop rate also declined by 22 basis points to 16.62 per cent, even as the DMO allotted N1.05tn at the auction. Commercio Partners said the decline in the stop rate, despite the larger allotment, reflected strong investor appetite for government securities. However, the optimism at the short end of the market was not replicated across longer-dated FGN bonds, where selling pressure increased during the week.
Several longer-term bonds came under pressure, with the 2035 and 2037 maturities, which had initially attracted buying interest, repricing from around 16.60 per cent to 16.90 per cent. The 2038 maturity also traded around 17 per cent as bearish sentiment strengthened, with the investment firm linking part of the weakness to short-selling activity. The divergence highlights a more selective market, with investors appearing more comfortable with shorter maturities while demanding higher yields or taking a cautious approach to long-term debt.
Attention now turns to the forthcoming FGN bond auction, which could provide a clearer picture of investor appetite for longer-term government securities. Commercio Partners expects caution to persist ahead of the auction, while upcoming inflation figures could influence expectations for interest rates and bond yields. Meanwhile, banking system liquidity fell from N4.27tn to N2.47tn during the week, although the Nigerian Overnight Financing Rate remained at 22 per cent. In the foreign exchange market, the naira weakened by 0.40 per cent week-on-week to N1,326.51/$ at the Nigerian Foreign Exchange Market.
source: punch
