Yields to Stabilise as DMO Implements 2021 Deficit Financing Plan
Yields are expected to stabilise as the Debt Management Office is expected to begin the implementation of 2021 deficit financing plan.
Nigeria is expected to finance N4.48 trillion budget deficit with domestic borrowings in addition with bilateral and multi-lateral loans.
The bond market witnessed some selling pressures Monday amid risk aversion due to the recent weakness in oil prices and growing apprehension on the sustainability of the bond rally.
Yields expanded across the benchmark bond curve by an average of 8bps to 4.00%, driven by the short (+8bps to 2.80%), mid (+8bps to 3.76%) and long (+9bps to 5.51%) end of the curve.
However, Chapel Hill Denham said front end rates traded largely flat, as the Nigerian Treasury Bill and Open Market Operations benchmark curves were unchanged at an average of 0.56% and 0.55% respectively.
Analysts highlighted that investor pessimism will likely increase in the short term amid falling oil prices and record low yields.
Nonetheless, Chapel Hill Denham thinks it is too early to call the end of the rally, as the liquidity backdrop remains supportive, in the near term.
The firm added that a fresh batch of OMO maturities is expected tomorrow, with no meaningful primary market activity to absorb the liquidity.
“This is likely to continue until the DMO begins to implement the 2021 deficit financing plan, at which point we expect yields to stabilise”, Chapel Hill Denham stated.
As expected, interbank funding pressures opened the weak broadly benign, as financial system liquidity remained robust, opening at N655.5 billion from N794.0 billion on Friday.
Consequently, money market rates remained at low single-digit.
Notably, the Open Buy Back (OBB) and Overnight (OVN) rates eased by 25bps apiece to 0.75% and 1.00% respectively.
“We expect funding pressures to remain benign for the most part of the week, partly buoyed by OMO maturities tomorrow worth N224.45 billion”, Chapel Hill Denham said.
Liquidity could however become tight on Friday due to the Central Bank of Nigeria’s retail foreign exchange auction.
Read more: Yields Drop to New Records Lows as Market Reacts to DMO Circular
