Fixed Income Market: Bullish Sentiment Drives Bond Performance
In the fixed income market, bullish sentiment drive bond performance on Tuesday as Nigerian Treasury Bill auction is schedule to hold Wednesday.
Investors’ sentiments turned bullish in the T-Bill market after 7 trading session of quiet activities as investors anticipated the Monetary Policy Committee decision.
Greenwich Merchant Bank noted that MPC decision to keep benchmark interest rate and other parameters unchanged were in line with market expectation.
The Merchant bank stated that the market performance was powered by bargain hunting 28-Oct-2020 (-20bps) after selloffs on the instrument solely moved the market on Monday.
Similar to the pattern at the start of the week, Greenwich said the rest of the market remained unchanged.
Over all, average yield dropped 1 basis point to 0.10%
As the T-bill Primary Market Auction holds Wednesday, Greenwich anticipates further depression in the stop rates due to high system liquidity
However, money market rates – open buyback (OBB) & overnight rate (OVN) fell further by 112bps and 119bps respectively to 0.88% and 1.31%.
System liquidity remained buoyant, opening higher at N370.30 billion from N244.45 billion yesterday, and further supported by OMO maturity inflow of N103.1 billion that hit the system.
At the close of trading today, discount rates on benchmark NTBs were unchanged at an average of 0.10% while benchmark OMO bills rose by 1bp to 0.14%.
Read Also: Yields on Bonds Plunged across Benchmark Tenors to 3.68%
On the other hand, bonds remained bullish as the average yield on the benchmark curve declined further by 2bps to 4.17% on buy sentiment across the short (-1bp to 1.88%) and mid (-4bps to 4.21%) segments of the bond yield curve.
At the end of the two-day meeting, the committee decided to retain all policy metrics to give more room for the impacts of its previous rate cuts to permeate the economy.
The committee noted the accelerating level of inflation in the economy and disclosed that it would aggressively attack supply-side inflation using a low-interest rate.
The Committee decided to retain policy rate at 11.5%, asymmetric corridor around the MPR from +200/-500bps to +100/-700bps, Cash Reserves Ratio (CRR) at 27.5%; and the liquidity ratio at 30.0%.
“We expect stop rates on the auction to trend marginally lower, on the back of robust liquidity within the financial system”, Chapel Hill Denham stated in a note.
