Bond, T-Bills Yields Track Higher after Interest Rate Hike
The fixed income market is seen an upward adjustment to spot pricing and the yield curve is also adjusting accordingly after the recent interest rate adjustment by the monetary authority. The rate hike has started influencing naira assets which have been depressed due to a higher inflation rate.
The average yields on the Federal Government of Nigeria (FGN) bonds and Treasury Bills including open market operation (OMO Bills) instruments are adjusting to an upward adjustment to the interest rate in the fixed income market.
Trading activities in the Nigerian debt capital market remained bearish, according to trading data following the monetary policy 150 basis point increase in the policy rate to 13%.
In the secondary market, FGN yields rose for most maturities. The 20-year FGN Bond tenor printed as high as 14.06% in the just concluded week, according to Cowry Asset Management. In the CBN auction, stop rates were adjusted to reflect the new policy rate.
Specifically, the 15-year 12.50% FGN MAR 2035 bond, the 20-year 16.29% FGN MAR 2037 bond and the 30-year, 12.98% FGN MAR 2050 lost N1.11, N2.65 and N1.55 respectively. Traders note shows that their corresponding yields increased to 12.50% (from 12.33%), 12.85% (from 12.51%) and 13.07% (from 12.86%) respectively.
However, the 10-year 16.29% FGN MAR 2027 paper gained N0.19 while its corresponding yield fell to 10.84% (from 10.90%), traders said in a market note. Also, the value of FGN Eurobonds traded in the international capital market increased amidst the interest rate hike by the global Central Banks.
The 10-year, 6.375% JUL 12, 2023 bond, the 20-year, 7.69% FEB 23, 2038 paper and the 30-year, 7.62% NOV 28, 2047 debt rose by USD2.11, USD6.95 and USD6.70 respectively. Their corresponding yields fell to 7.16% (from 9.16%), 10.99% (from 12.23%) and 10.80% (from 11.90) respectively.
“In the new week, we expect local OTC bond prices, especially at the longer end of the curve, to increase (and yields to moderate) as yields remain relatively attractive”, according to Cowry Asset. READ: Yields on Fixed Income Assets Fall as Spot Rate Swing
In the money market, short term rates adjusted to the movement in the strained financial system liquidity in the just concluded week. The overnight lending rate expanded by 150bps week on week to 14.0%. Due to pressures on liquidity, the overnight rate was elevated all through the week.
In a market note, Cordros Capital said, the system was pressured with funding for CBN’s auctions (OMO, NTB and FX) and offset inflows from OMO maturities of N30.00 billion and FGN bond coupon payments totalled N9.37 billion.
Analysts said they expect a moderation in the overnight rate due to expectations of improved system liquidity, as inflows amounting to N425.63 billion flow into the system from FAAC disbursements of about N400.00 billion, FGN bond coupon payments valued at N5.63 billion and OMO maturities (N20.00 billion).
Treasury bills secondary market ended on a bearish note last week on the back of the depressed system liquidity, and the adjustment in secondary market rates. In the primary market auction for the Nigerian Treasury Bills conducted by the Central Bank of Nigeria, spot rates were priced higher after the 150 basis point upward adjustment to the benchmark interest rate.
Traders said that the average yield across all instruments expanded by 19 basis points to 4.0% and the market is also expecting further repricing. Across the segments, Cordros Capital analysts said the average yield expanded by 40 and 14 basis points to 4.4% and 3.8% at the OMO and Nigerian Treasury Bills segments, respectively.
Recall that the CBN offered N153.03 billion split as: N5.36 billion for the 91-day, N3.78 billion for the 182-day, and N143.88 billion for the 364-day – in bills in the primary market auction conducted last week.
Auction results showed that the CBN allotted N173.48 billion as: N3.56 billion for the 91-day, N1.52 billion for the 182-day and N168.67 billion for the 364-day bills. Their respective stop rates adjusted upward at 2.50% for 91-day Treasury bill which was previously priced at 1.74%, 3.89% for 182-day bill previously priced at 3.00%, and 6.49% for 364-day previously priced at 4.70%.
Elsewhere, at the OMO auction, the CBN offered and allotted N20.00 billion worth of bills to market participants and maintained stop rates across the three tenors, as with previous auctions. Analysts expect bullish sentiments in the T-bills market, following the expectation of healthy system liquidity.
“We believe the MPC’s rate hike will continue to drive aversion for long-dated bonds in the short term. Consequently, we reiterate our view of an uptick in bond yields in the medium term, as both the FGN’s borrowing plan for 2022 and expected fiscal deficit point towards an elevated supply”, Cordros Capital said. #Bond, T-Bills Yields Track Higher after Interest Rate Hike