Nigerian Treasury Bills Yields Fall as Investors Bet on Inflation Drop

The Nigerian Treasury bills market witnessed a significant shift on Monday, with the average yield on T-bills dropping to 25.6% in the secondary market.

This decline, driven by increased buying interest, reflects investor optimism that upcoming inflation data may show a decrease, marking the first such decline in a considerable period.

The market’s bullish turn follows last week’s Central Bank of Nigeria (CBN) primary market auction, where spot rates were cut, further fueling investor confidence.

The anticipation of a potential decline in inflation has spurred demand for Treasury bills, as investors seek to lock in returns ahead of what they believe could be a pivotal moment for the Nigerian economy.

Analysts from Broadstreet and Cordros Capital have noted that the average yield on T-bills fell by 17 basis points to 25.6% across the curve.

This decline was most pronounced in the long-term segment, with yields on 192-day to maturity bills dropping by 201 basis points.

The short- and mid-term segments also saw yield reductions of 4 and 5 basis points, respectively, as demand surged for bills with 87- and 150-day maturities.

The buying spree is largely attributed to market expectations that inflation, which has been persistently high, might finally ease due to base effects starting from July’s Consumer Price Index (CPI) reading.

This potential moderation in inflation is seen as a critical factor that could influence monetary policy and, consequently, market yields.

Despite the optimism in the T-bills market, the Open Market Operations (OMO) bills segment saw a contrasting trend.

Here, the average yield increased by 4 basis points to 26.2%, reflecting different investor sentiments in the short-term liquidity market.

Market participants are keenly awaiting the official inflation data, which will provide a clearer picture of the economic landscape.

A drop in inflation could validate the current bullish sentiment and lead to further yield contractions in the T-bills market. Conversely, if inflation remains stubbornly high, the recent rally could be short-lived, and yields might rebound.

As the week progresses, all eyes will be on the inflation report, which could set the tone for the fixed income market in the coming months.

The interplay between inflation expectations and investor behavior will be crucial in determining the direction of Treasury bills yields, as market participants navigate the evolving economic conditions.