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Naira Rebound: Investors favour 364-day bonds, Treasury Bills - NIGERIAN TRIBUNE
The recent appreciation of the Nigerian naira has sparked a surge in demand for long-term fixed-income instruments, with investors heavily favouring 364-day bonds and Treasury bills.
As the currency strengthens, investors are looking to capitalize on the stability and attractive yields of these instruments, signaling growing confidence in the Central Bank of Nigeria’s (CBN) monetary policies.
At the official Nigerian Autonomous Foreign Exchange Market (NAFEM) window, the naira closed the week at N1,501.61/$1, while in the parallel market, it remained stable at N1,575/$1, marking a notable improvement from its previous position above N1,600/$1.
This stability, alongside strong corporate earnings, fueled bullish trends across the equities and fixed-income markets. Treasury and Open Market Operation (OMO) bills saw increased demand, while bond yields adjusted slightly in response to market movements.
Financial analysts from Financial Derivatives Company (FDC) Limited, led by Bismarck Rewane, project that Treasury bill rates will likely remain stable at 18 percent per annum for 90-day maturities.
Meanwhile, they expect the naira to trade within N1,600/$ – N1,650/$ in the parallel market.
A stable naira according to experts attracts foreign investors to Nigerian bonds and Treasury bills and may help reduce inflation, leading to lower fixed-income yields.
The first Nigerian Treasury Bills (NTB) Primary Market Auction (PMA) for February 2025, held last Wednesday, saw overwhelming investor demand.
The CBN successfully allotted N670 billion across 91-day, 182-day, and 364-day maturities, but total subscriptions surged to N3.2 trillion, highlighting strong investor confidence.
Notably, 98 percent of bids were directed toward the 364-day maturity, indicating that investors are positioning for long-term yields amid potential shifts in monetary policy and inflation dynamics.
The 91-day and 182-day bills saw lower-than-offered subscription levels, with the 182-day instrument recording a significant shortfall, attracting just N19.52 billion out of the N120 billion offered.
The stop rates for the three tenors settled at 18 percent, 18.5 percent, and 20 percent, respectively, reflecting the tight liquidity conditions and investor demand for higher returns.
Dealers say the rates indicate that the government is willing to pay a premium to attract investors, particularly for the 364-day bills. This trend could influence future bond yields and impact overall liquidity in the fixed-income market.
The CBN’s allocation of N619.36 billion for the 364-day bills indicates a strategic effort to attract liquidity for government financing while balancing market interest rates.
Analysts at Cowry Asset Management Limited suggest this strong demand reflects sustained appetite for risk-free government securities, especially in a high-interest-rate environment.
It should be recalled that in a bid to stabilize the naira in 2024, the CBN sold N5.6 trillion in Treasury Bills and OMO Bills between February and March, at an average yield of 20.5 percent and an FX rate of N1,466.23/$.
These interventions which are being fine-tuned, underscore the bank’s ongoing efforts to manage exchange rate volatility while ensuring liquidity in the fixed-income market.
As investors continue to favour long-term instruments, the fixed-income landscape will be shaped by evolving monetary policy, inflation expectations, and foreign exchange trends.
