Safe Haven Seeking Investors Demand for Bonds Drag Yield Lower
The average yield on Bonds slumps as naira steadies at the investors and exporters foreign exchange window on Monday while the Treasury bills market sees a moderate jump in the yield curve. Real returns on fixed income instruments have been negative but demand has remained strong.
Coming from a tepid market outing in the just concluded week, there was increased demand for Federal Government of Nigeria (FGN) long-dated bonds in the secondary market. The increase in FGN bonds demand was driven by investors seeking a safe haven, thus average yields across the curve cleared lower two basis points.
At the investors and exporters foreign exchange market, the naira remained unchanged at N415.07, according to data from FMDQ Exchange. Most participants maintained bids between N404.00 and N444.00 per dollar.
Higher subscription levels at the primary market auctions have kept yields on fixed-income market instruments on a downward trend. But moderation in headline inflation rate has also reduced negative real return earnings by investors.
Possible yield repricing is unlikely in 2021, according to analysts as the Central Bank keeps eyes on the monetary policy rate after banning certain individuals from participating in the open market operations (OMO Bills) in 2019.
Since then, free funds have flooded the market, thus keeping the yield on fixed instruments lower because of heavy credit positions. In the bonds market, yields move inversely to bonds prices, analysts told MarketForces Africa on Monday, saying falling yields indicate an increased investors’ demand for relatively safer bonds over riskier assets.
In the money market, short term rates decline again on Monday amidst the expectation that the financial system will see liquidity pressures this week as banks sell down Treasury instruments to meet their funding needs.
In the absence of liquidity pressure in the financial system, the Overnight (O/N) rate decreased by 0.42 per cent to close at 15.25 per cent as against the last close of 15.67 per cent, while the Open Buy Back (OBB) rate remained unchanged at 15.00 per cent.
Kicking the week on a relatively bullish note, trading activities in the Nigerian Treasury Bills space ends with the yield curve staying flattening, marking the last lap of a relatively flattish yield in the year.
The shape of the treasury bills curve since the second half of 2021 depend largely on the subscriptions level in the primary market auction and healthy liquidity position that has caused a declining spot rate on 364-day T-bills –especially.
Today, T-Bills secondary market closed on a mildly negative note with average yield across the curve increasing by 1 basis point to close at 4.86 per cent from 4.85 per cent on the previous day, according to FSDH Capital note.
The investment firm said in the note that average yield across the long-term maturities expanded by 1 basis point. However, the average yields across short-term and medium-term maturities remained unchanged at 3.52 per cent and 4.30 per cent, respectively.
NTB 25-Aug-22 (+12 bps) days to maturity bill witnessed selling pressure, while yields on 19 days to maturity bills remained unchanged, analysts stated.
In the open market operations (OMO bills) market, the average yield across the curve closed flat at 5.50 per cent. FSDH Capital said Average yields across short-term, medium-term, and long-term maturities remained unchanged at 5.36 per cent, 5.54 per cent, and 6.15 per cent, respectively.
FGN bonds secondary market closed on a mildly positive as the average bond yield across the curve cleared lower by 2 basis points to close at 8.15 per cent from 8.17 per cent on the previous day.
Average yields across short tenor and medium tenor of the curve declined by 1 basis point and 2 basis points, respectively. However, the average yield across the long tenor of the remained unchanged.
FSDH Capital sees the 18-JUL-2034 maturity bond as the best performer with a decrease in the yield of 19 basis points, while the 27-MAR-2050 maturity bond was the worst performer with an increase in yield of 8 basis points.
Today, activities at the FGN Eurobond market traded on mixed sentiments as average yield climbed slightly by 1 basis point to close at 7.55%. Analysts said the secondary bond market is likely to remain subdued in the short term. MarketForces Africa reports that when bonds yields fall, prices has increased due to higher demand for the instruments.
Also, when yields rise, bonds price has fallen due to lower demand from bondholders in the Nigerian debt capital market. #Safe Haven Seeking Investors Demand for Bonds Drag Yield Lower
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