Treasury bill yields fall as investors chase Naira returns

Yields on Nigerian Treasury Bills (NTBs) eased slightly as investors increased purchases in the secondary market, encouraged by stronger real returns on naira assets following the latest moderation in inflation and about N5 trillion in excess liquidity across the financial system.

Fixed-income analysts at Broadstreet said the excess liquidity is expected to support demand for Treasury bills in the secondary market, particularly in the absence of a primary auction this week.

The increased demand followed the recent easing in yields on Federal Government bonds, which investors interpreted as a possible signal of broader repricing across the fixed-income market.

The Debt Management Office (DMO) had lowered the marginal rates on the three reopened FGN bonds offered at its August auction, with yields settling below the levels recorded at the previous auction.

Analysts said the lower bond rates could encourage investors to reposition portfolios towards Treasury bills and other short-term naira instruments, particularly as improved inflation conditions strengthen real returns.

CardinalStone Securities said the fixed-income curve recorded slight yield contractions, with short-term rates falling by one basis point and long-term rates declining by two basis points, reflecting buying interest.

Trading was concentrated around the 12-August Treasury bill and the 29-December OMO Bill, with the discount rate on the August-dated NTB declining further to 17.30 per cent.

AIICO Capital said market activity remained healthy, with a considerable number of transactions executed during the session.

Consequently, the average market yield declined by one basis point to 18.60 per cent.

The latest movement suggests that investors are increasingly willing to lock in yields on government securities before rates decline further, particularly as monetary and liquidity conditions evolve.

The expectation of continued strong liquidity is also supporting demand for short-term government securities.

Analysts at Herwood Securities said Treasury bill yields could decline further in the absence of an OMO auction during the week, as available liquidity chases existing securities in the secondary market.

The prospect of lower yields is significant for investors because the current environment offers a trade-off between securing relatively high nominal returns and positioning ahead of further rate compression.

With real returns improving following the recent easing in headline inflation, investors may be more willing to accept slightly lower nominal yields in exchange for relatively strong risk-adjusted returns on government-backed instruments.

The increased demand also highlights the continued dominance of fixed-income securities in Nigeria’s financial markets, as investors seek relatively low-risk assets amid uncertainty in equities and other markets.

For the government, however, sustained demand for Treasury bills at lower yields could gradually reduce the cost of short-term domestic borrowing.

The immediate market focus will therefore remain on liquidity levels, future OMO operations and the direction of inflation, as these factors will determine how quickly Treasury bill yields adjust in the coming sessions.