Bond, T-Bills See Yields Rising, FGN Eurobond Falls
Patience Oniha, DMO Boss

Bond, T-Bills See Yields Rising, FGN Eurobond Falls

The average yield on the Federal government of Nigeria (FGN) bond inched higher at the secondary market in the just concluded with a similar trend spotted in the Treasury space after an uptick in spot rates.

Demand for T-Bills had dropped in the secondary market, which then lifted the average yield upward, after Central Bank of Nigeria (CBN) Primary Market Auction spot rates rise.

Thus, the average yield across all instruments inched higher by 3 basis points to 3.3%, according to traders’ notes. There is an expectation yield curve will inch up higher in the second quarter as the government increase borrowing to finance the 2022 budget.

Across the market segments, Cordros Capital analysts said the average yield expanded by 15 basis points and two basis points to 3.8% and 3.2% at the open market operation (OMO) and NTB segments, respectively.

In the just concluded week, the CBN conducted an open market operation auction (OMO) where the apex bank sold N50.00 billion worth of bills to market participants.

Auction results indicate that there was no repricing as stop rates across the three tenors were steady as with previous auctions.

At the Nigerian Treasury bills auction conducted last week, the CBN offered N143.29 billion split as N2.49 billion for the 91-day, N2.09 billion for the 182-day, and N138.71 billion for the 364-day bills.

Relatively oversubscribed, the CBN then allotted N174.19 billion split as N13.88 billion for the 91-day, N20.35 billion for the 182-day and N139.96 billion for the 364-day bills.

The stop rate for 91-day was priced at 1.75% from 1.74%. Mid-tenored Nigerian Treasury Bills sport rate remained unchanged at 3.00% while 364-day bill inched up to 4.45% from 4.00%.

With system liquidity expected to tighten expected in the new week, Cordros Capital anticipates a further increase in the average yields on T-bills. The overnight rate expanded by 450 basis points to 10.7%, according to market data.

Analysts said the overnight lending was depressed during the week as system liquidity remained healthy against the backdrop of about N350 billion FAAC disbursement from the prior week and inflows from FX retail refunds.

Also, N10 billion inflow from OMO maturities was recorded and FGN bond coupon payments worth N40.77 billion. However, the rate expanded at the end of the week following debits for cash reserve ratio (CRR) and the weekly OMO worth N50.00 billion and FX auctions.

In the absence of any significant inflows expected to hit the financial system next week, we expect system liquidity to be pressured. Thus, we envisage an expansion in the overnight rate from current levels.

The FGN bonds secondary market traded with mixed sentiments, albeit with a bullish tilt, as market reaction to the higher NTB stop rates midweek dampened the buying interests witnessed in the early part of the week, traders said.

Consequently, the average yield declined slightly by a basis point to 10.7%. Across the benchmark curve, Cordros Capital analysts explained that the average yield expanded at the short (+1bp) end as investors took profits off the APR-2023 (+60bps) bond.

However, yield contracted at the long (-4bps) following demand for the MAR-2036 (-19bps) bond. Meanwhile, the average yield was flat at the mid-segment, according to traders. READ: Yield Inched Higher as Investors Sell FGN Bonds

“We maintain our view of an uptick in bond yields in the medium term, especially as we start a liquidity stiffened Q2-2022, with the FGN’s borrowing plan worth N2.57 trillion for 2022 pointing to elevated supply”.

Elsewhere, the value of FGN Eurobonds traded at the international capital market appreciated for all maturities tracked on renewed bullish sentiment.

The 10-year, 6.375% JUL 12, 2023 bond, 20-year, 7.69% FEB 23, 2038 paper and the 30-year, 7.62% NOV 28, 2047 debt gained USD0.59, USD2.49 and N2.15 respectively, according to Cowry Asset Management.

The Eurobond instruments corresponding yields moderated to 4.80% (from 5.29%), 9.39% (from 9.73%) and 9.49% (from 9.76%) respectively, traders said.

“We expect to see bearish activity in the FGN bond space amid rising yields in the money market – the 364-day NTB auction was done at 45 bps higher from the previous stop rate of 4.00%”, traders stated. #Bond, T-Bills See Yields Rising, FGN Eurobond Falls