Analysts See Treasury Yield Rising but Less Steeply
In the second half of 2021, Meristem Securities analysts said in a report that they see treasury yield rising but less steeply. The investment firm explained that the reversal in the direction of yield on treasury instruments came earlier and stronger than what the market anticipated.
“While the average treasury bills yield has risen to 6.28% as of June 2021 from 0.44% as of the last trading day of 2020, the average bond yield has increased to 12.18% as of June 2021 from 6.04% as at the last trading day of 2020”, Meristem said.
Recall that at the beginning of the year, guided by analysts’ expectation of a sustained accommodative monetary stance by the apex monetary authority, Meristem Securities prognosis was that rates would remain low until at least the end of H1:2021 when a reassessment of the macroeconomic environment would be carried out.
The investment firm highlighted that while the Central Bank of Nigeria (CBN) has maintained an accommodative stance as expected, yields on treasury instruments have risen sharply due to other factors.
Analysts said these factors include higher rates at primary market auctions -driven by stronger demand for domestic funds by the borrower and higher bid rates by investors- significantly higher OMO rates and the introduction of Special Bills issued by CBN to banks in lieu of excess CRR debits.
It said in the report that this development further highlights the weakness in the link between the monetary policy rate and Treasury yields as treasury yields rose despite the accommodative monetary policy.
“We expect monetary policy to remain accommodative over the near term in support of economic growth. However, we look to the FGN’s renewed focus on the domestic debt market (per the new Debt Management Strategy) and persistent inflationary pressures as factors that will determine primary market rates over the near term.
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“In our opinion, however, these factors are weak and are further tapered by the need to keep funding costs within tolerable limits by the FGN (which happens to wield significant control over the market due to the availability of few other borrowers)”, the firm stated.
Meristem Securities analysts projected that yields will rise more slowly over the next half of the year in line with primary market auction rates. However, a significantly higher rate of corporate issuances in H2:2021 may cause a steeper rise in treasury yields, analysts added.
Analysts See Treasury Yield Rising but Less Steeply
