Bond Yield Falls as DMO Achieves 2021 Borrowing Target
The average yield on the Federal Government of Nigeria (FGN) bond falls on Monday as Debt Management Office achieves the 2021 borrowing target. Yields on fixed income securities witness moderate pressures in the latter part of the year on account of improved macroeconomic data and specifically disinflation while monetary authority kept benchmark interest rate.
The combined effects resulted in low catalysts for upward yield repricing.
But then, persistent decline in headline inflation rate narrowed negative real return earned by fixed income investors. Unfortunately, higher subscription levels at primary market auctions for debt instruments continue to reprice spot rates on fixed income instruments.
In the money market, the average interbank rate climbed by 75 basis points to close at 12.25% on Monday, both open buy back and overnight lending rates.
The overnight lending rate expanded by 75 basis points to close at 12.50 per cent as against the last close of 11.75 per cent, and the Open Repo rate also increased at the same level, up 75 basis points to close at 12.00 per cent compared to 11.25 per cent on the previous day.
In the Treasury bills space, trading activities on T-Bills secondary market closed on a flat note with average yield across the curve remaining unchanged at 4.48 per cent, according to analysts note. In its note, FSDH spotted that average yields across short-term, medium-term, and long-term maturities closed flat at 3.39 per cent, 3.98 per cent, and 5.31 per cent, respectively.
In the OMO bills market, the average yield across the curve closed flat at 5.45 per cent, according to analysts’ notes. Average yields across short-term and long-term maturities remained unchanged at 5.43 per cent and 5.53 per cent, respectively.
FGN bonds secondary market closed on a mildly positive note today, as the average bond yield across the curve cleared lower by 1 basis point to close at 8.10 per cent from 8.11 per cent on the previous day.
Average yields across short tenor and long tenor of the curve decreased by 1 basis point each. However, the average yield across the medium tenor of the curve remained unchanged.
The 24-JUL-2045 maturity bond was the best performer with a decrease in the yield of 5 bps, while the FGNSB 11-MAR-2022 bond was the worst performer with an increase in yield of 3 bps.
FSDH Capital hints that this year, the DMO had a domestic funding target of ₦2.74 trillion which includes the supplementary budget passed in 2021.
Analysts explained that including competitive & non-competitive sales to public agencies, the DMO has raised around ₦2.70 trillion at its bond auctions in the year.
“Even without the small sums it makes from selling other instruments such as Sukuk, FGN savings bonds, and green bonds, the DMO has comfortably achieved its domestic funding target”.
As per the next year’s 2022 fiscal budget proposal, the FGN has another stiff domestic funding target of around ₦2.50 trillion. With another heavy funding target, the DMO may front-load its supply of FGN bonds, which can pressure the rates in the upward direction, FSDH Capital stated.
In a market note, WSTC Securities said between October 2021 and November 2021, the secondary market yields in the fixed income market rose by an average of 20 basis points and 7 basis points at the short segment and mid-segment, respectively of the yield curve.
The average yields on the longer-tenor segment of the market declined by 6 basis points. As of the end of November 2021, the average yield on 1- year government instruments stood at 6.98%; the average yield on 5-year government instruments stood at 11.53%; while the average yield on 10-year government instruments stood at 12.18%.
In the primary market, the yield on 364-day Nigerian Treasury Bills (NTB) closed October 2021 at 7.82%, representing a decline from the 8.11% yield it closed at in September 2021. In November 2021, the yield further moderated to 6.26%
Some fixed income analysts attribute the general trend of declining yields to improved fundamentals of the economy, especially with stable oil prices in the global market and a better than usual external reserves position. #Bond Yield Falls as DMO Achieves 2021 Borrowing Target
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