Bond, Treasury Swerve amidst Liquidity Pressure
The average yield on Nigerian Treasury Bills (NTB) continues to decline amidst tight liquidity in the financial system. More funds were seen flowing across bills of various tenors as investors weigh inflation pressures on real return. On the other hand, the yield on Nigerian bond instruments jumps on Monday.
With the recent interest rate hike, there is an expectation that yield would make an uptrend while government debt agencies execute borrowing plans in the fourth quarter of the year. At the close of the market, trading activities in the bond market ended flattish with a thin transaction conducted across tenors.
In its market note, Cowry Asset Management said values of plain vanilla FGN bonds were flat for the majority of maturities tracked. Consequently, the average secondary market yield expanded by two basis points to 14.40% amid bearish sentiment.
Analysts at Cordros Capital added that across the benchmark curve, the average yield expanded at the short (+1bp), mid (+4bps), and long (+2bps) segments following selloffs of the APR-2023 (+7bps), APR-2032 (+8bps), and JUL-2034 (+15bps) bonds, respectively.
As total pension assets hit N14.4 trillion, FGN debt securities accounted for 63.7% of the total asset under management in September 2022 compared with 63.2% recorded in the corresponding period of 2021.
According to the latest monthly report released by Nigeria’s Pension Commission (PENCOM), the assets under management (AUM) of the regulated pension industry increased by 10.9% to N14.4 trillion in September 2022.
There is an expectation that yields on government instruments would inch upward as the market weighs Nigeria’s inflation and increased benchmark interest rate. READ: Treasury Bill Yield Rises as Naira Tumbles
Pension Commission reported that total FGN debt securities held by Pension Fund Administrators (PFAs) increased by 11.8% year on year and declined marginally by -0.2% in the month to N9.2 trillion in September.
Furthermore, FGN bonds held by PFAs increased by 12.3% y/y to N8.8trn. This category accounted for 61.0% of the total AUM compared with 60.2% recorded in the corresponding period of the previous year.
In the money market, short-term benchmark rates inched higher as financial system liquidity slipped again, raising funding pressures for market participants.
Data from the FMDQ Exchange plan see Nigerian interbank rate adjusting upward as the Open Buyback Rate (OPR) and the Overnight Lending Rate (OVN) widened to 13.75% and 14.13% on Monday.
The overnight lending rate expanded by 150 basis points to 14.13%, as the system liquidity settled lower at a net long position of N43.19 billion, according to Cordros Capital analysts’ note.
Meanwhile, the value of the FGN Eurobond decreased for all maturities tracked amid renewed bearish sentiment. Hence, the average yield expanded by 19 basis points to 11.83%.
In the secondary market for Treasury bills, trading activities ended also on a bullish note, following moderate economic growth in the third quarter of the year. Traders said the average yield contracted by 17 basis points to 10.5%.
Treasury yield appears to be retreating due to demand pressures despite a worsening inflation rate.
Across the curve, traders noted that the average yield decreased at the short (-1bp), mid (-32bps), and long (-1bp) segments as participants demanded the 87-day to maturity (-1bp), 108-day to maturity (-223bps), and 332-day to maturity (-2bps) bills, respectively.
Similarly, the average yield pared by a basis point to 10.1% in the OMO segment. The decision of the Monetary Policy Committee (MPC) to increase the Monetary Policy Rate (MPR) by an additional 100 basis points to 16.50% means fixed income instruments yield is most likely to further rise, Meristem Securities said in a note.
#Bond, Treasury Swerve amidst Liquidity Pressure
