Nigeria’s fixed income market is set for another Treasury bills auction, with investors expected to deploy excess liquidity into government securities as banking system cash balances approach N7tn.
The Debt Management Office, acting on behalf of the Central Bank of Nigeria, will offer N800bn in Treasury bills on Wednesday across 91-day, 182-day and 364-day tenors.
The auction comes amid elevated banking system liquidity, which is expected to strengthen demand for government securities and potentially drive subscriptions above the amount on offer.
Market analysts expect investors to favour the 364-day Treasury bills as they seek to lock in prevailing yields ahead of further declines in short-term interest rates.
The financial system is also expected to receive fresh liquidity of about N2.26tn this week from maturing government securities.
The inflows comprise N2.13tn from maturing Open Market Operations bills and N130.72bn in Treasury bills repayments.
The repayments are expected to boost cash available to banks and other financial institutions, potentially strengthening their capacity to participate in the upcoming Treasury bills auction.
However, the Treasury bills auction is expected to absorb part of the excess liquidity as investors pay for their successful bids.
The Central Bank of Nigeria could also deploy Open Market Operations auctions to mop up surplus funds, particularly as maturing OMO instruments inject substantial liquidity into the banking system.
The overall impact on system liquidity will depend on the volume of funds withdrawn through the CBN’s monetary operations and the amount investors commit to the Treasury bills auction.
Expectations of lower Treasury bills yields are being reinforced by the Central Bank of Nigeria’s recent monetary easing and a sustained moderation in inflation.
The CBN cut its benchmark interest rate in September, fuelling expectations of further monetary easing in the final quarter of the year.
If the trend continues, yields on naira-denominated investments could face further pressure as investors adjust their expectations for future interest rates.
The outlook could encourage investors to favour longer-dated Treasury bills to lock in prevailing returns before yields decline further.
