Nigerian treasury yields are expected to fall at next week’s government auction after the Federation Account Allocation Committee disbursed N403 billion of revenue to its 36 states boosting liquidity and demand, dealers said  Weekend.

Nigeria will sell N80 billion  in 3 year, 5 year and 20 year sovereign bonds on June 23, its sixth debt auction this year, according to the  Debt Management Office (DMO).

The DMO said it would sell N30 billion  in 3 year bonds, N30 billion in the 5 year paper and N20 billion in the 20 year debt instrument. Yields will be determined after the auction.

By close of trade last week secondary market yields had declined across maturities, hammered by excess liquidity from the government’s distribution of N403 billion  to the  36 states and Federal Capital Abuja as May budgetary allocations.

“Monies have come in and dealers have cash to buy bonds from the secondary and primary market,” said one trader. “This will make the demand at the auction next week high, so the stop rate (the yield at the auction close) will go down.” Before the disbursal, 20 year bonds  the nation’s longest dated debt instrument  was trading at a yield of 8.7 percent. It is now at 8.34 per cent.

“There was a 200 basis point movement downwards in yields,” said Ikechukwu Onyenwe, bond dealer at Fidelity Bank. “Investors are buying in the secondary market, anticipating that government will issue at a lower yield next week ahead of high demand,” he said, adding he expected yields at the government’s auction to drop by 200 basis points.

Liquidity in  the sovereign debt market is driven by the government’s fiscal activities, and as soon as statutory revenue allocations are disbursed, bond yields and interbank rates fall.