10-Year FGN Bonds, T-Bills Rates Rise 4% in 2021
Amidst negative net yields on fixed interest instruments in the fixed income market, the 10-year Federal Government of Nigeria (FGN) bonds rate jumped by about 4 per cent in the financial year 2021.
The nation’s high inflation rate had eclipsed returns on fixed interest rates instruments, especially in the second half of 2021 following moderation in Debt Management Office borrowings raise.
Headline inflation raced downhill to 15.40 per cent in November 2021 from 18.17 per cent in March, thus moderating negative return earned by fixed instruments investors.
Analysts see the negative net yields on fixed instruments as a disincentive to both saving and investing in the Treasury or bond markets but health liquidity flows keep subscription levels higher.
Following the pandemic pressures, which started just after the Central Bank announced a ban on individuals from participating in the open market operation, naira assets had seen declined returns.
Yields reversed from making further upward trajectory and banks interest earnings assets tumbled – as Central Bank adopted a loose monetary policy to drive growth in the real sector of the economy.
Though, with the gloom comes the boom. The 364 Treasury bill rate increased by 3.5% from 1.5% at the beginning of the year to about 5% at the end of the financial year 2021.
Also, the 10-year FGN bond rate increased by 3.67% after starting the year with a rate of 7.98% and closing the year at 11.65%, according to SAMTL note.
The 350-day open market operation (OMO) rate increased by 4.36% from 5.74% at the beginning of the year to 10.1% at the end of the year.
In the money market, short term rates adjusted downward due to a healthy liquidity position in the financial system. The Overnight lending rate decreased by 0.25 per cent to close at 11.25 per cent as against the last close of 11.50 per cent.
Also, the Open Repo (OPR) rate decreased by 1.00 per cent to close at 10.00 per cent compared to 11.00 per cent on the previous day.
The CBN held its scheduled Primary Market Auction on December 29, selling NT-Bills worth ₦52.77 billion across the 91-day (₦2.49 billion), 182-day (₦2.16 billion), and 364-day (₦48.12 billion) tenors.
The stop rates for the 91-day and 182-day tenor remained unchanged at 2.49 per cent and 3.45 per cent, respectively. However, the stop rate for the 364-day tenor cleared lower at 4.90 per cent (-10 bps).
The auction was mildly oversubscribed by 56 per cent, with bid-to-cover ratios settling at 0.61x (91-day), 1.05x (182-day), and 1.69x (364-day).
At FGN Savings Bond Auction for December 2021, the DMO allotted bonds worth ₦302.06 million across the 2-year (₦99.02 million) and 3-year (₦203.04 million) tenors at coupon rates of 7.322 per cent (-5 bps) and 8.322 per cent (-5 bps), respectively.
Allotment for 2-year bonds decreased by 25.78 per cent compared to ₦133.41 million allotted in the last auction, and allotment for 3-year bonds decreased by 28.87 per cent versus ₦285.43 million allotted in the previous auction. #10-Year FGN Bonds, T-Bills Rates Rise 4% in 2021
Read Also: Yield Sinks Below 5% After 364-Day T-Bills Spot Rate Falls
