DMO to issue N1.15trn T-bills today

By Chinwendu Obienyi

The Debt Management Office (DMO) is scheduled to offer N1.15 trillion in Treasury bills at today’s NTB auction, a size widely regarded by market participants as substantial relative to current liquidity conditions.

This is coming after yields in the Treasury bills market rose sharply last week as bearish sentiment persisted in the secondary market, driven largely by excess supply and cautious investor positioning ahead of a major primary market auction.

Despite improved system liquidity during the week, trading activity remained weak, with sell pressure dominating most tenors. Market participants attributed the negative tone to a sustained supply overhang, which continued to outweigh demand across instruments.

As a result, the average yield across all Treasury bills instruments increased by 45 basis points (bps) to 20.3 per cent week-on-week (w/w).

A breakdown of the market showed divergent movements across segments. Average yields on Nigerian Treasury Bills (NTBs) rose modestly by 11 bps to 18.1 per cent, reflecting relatively stronger demand at the short end of the curve. In contrast, Open Market Operation (OMO) bills recorded a much steeper increase, with average yields climbing by 76 bps to 22.4 per cent, as offshore and domestic investors demanded higher returns amid elevated inflation expectations and tightening financial conditions.

Hence, analysts expect the large issuance by the DMO to exert upward pressure on yields, as investors redirect funds away from the secondary market toward the auction in search of more attractive stop rates.

This dynamic is likely to keep secondary market trading bearish in the days leading up to the auction.

The anticipated auction comes amid the government’s continued reliance on domestic borrowing to finance budgetary requirements, at a time when yields across the fixed-income space have trended higher following monetary tightening by the Central Bank of Nigeria (CBN).

Inflationary pressures, exchange rate volatility and elevated funding needs have collectively contributed to the repricing of fixed-income assets over recent months.

Treasury bills yields are likely to remain elevated in the near term, particularly if auction stop rates clear above prevailing secondary market levels. However, some market watchers expect demand from banks and pension funds to provide partial support, especially at the shorter end of the curve. For now, sentiment remains cautious, with investors prioritising liquidity and yield optimisation as the market awaits the outcome of today’s auction.