Bond Yield Dips to 11.79% after DMO Auction

Bond Yield Dips to 11.79% after DMO Auction

The average price on Federal Government of Nigeria (FGN) bond increased, thus yield across curve slow down a basis point to 11.79% as investors concentrate on Debt Management Office (OMO) primary market auction.

DMO conducted its scheduled FGN bond auction to reopen the 10-year and new 20-year instruments. A total of ₦150 billion was offered across 10-year (₦75 billion) and new 20-year (₦75 billion) tenors.

The temperature in the fixed income market has tuned cold as investors become more cautious ahead of Monetary Policy Committee meeting scheduled for Monday and Tuesday next week.

A slew of fixed income traders told MarketForces Africa that spot rates on instruments would be quite volatile pre-election year. DMO has also revealed a plan to raise N480 billion in the market in the first quarter of 2022. 

The combined effects of rising inflation, bond-buying tapering, and twice interest rate hikes expectations have been pushing U.S 10-year Treasury yields higher, nearing 2%.

Cardinalstone said in an outlook for 2022 that CBN may turn fully hawkish in 2022, while some analysts said reversed slowdown in headline inflation could prompt a benchmark rate hike in 2022.

In the money market today, the average interbank rate climbed by 63 basis points to close at 13.38%, following expansions at both the Open Buy Back rate and Overnight rate.

Indicating pressures on liquidity in the financial system, data from FMDQ Exchange shows that the overnight lending rate increased by 50 basis points to close at 13.50 per cent as against the last close of 13.00 per cent.

Due to strain in the financial system liquidity, Open Repo (OPR) rate also increased by 75 basis points to close at 13.25 per cent compared to 12.50 per cent on the previous daily record.

In the secondary market, the Nigerian Treasury Bills closed on a flat note with the average yield across the curve remaining unchanged at 4.54 per cent. In this segment, Treasury holders have become more cautious, especially as headline inflation widened negative real return on instruments.

Average yields across short-term, medium-term, and long-term maturities remained unchanged at 3.50 per cent, 4.11 per cent, and 5.21 per cent, respectively, according to various analysts’ notes.

In the Central Bank of Nigeria (CBN) open market operations (OMO bills) market, the average yield across the curve closed flat at 5.62 per cent, according to FSDH Capital note.

Similarly, the average yields across short-term and long-term maturities remained unchanged at 5.52 per cent and 5.71 per cent, respectively. In the secondary market for FGN Bond, trading activities was bullish as the average bond yield across the curve cleared lower by 1 basis point to close at 11.79 per cent from 11.80 per cent on the previous day.

Analysts noted that the average yields across short tenor and medium tenor of the curve decreased by one basis point and two basis points, respectively.

However, the average yield across the long tenor of the curve remained unchanged. The 17-MAR-2027 maturity bond was the best performer with a decrease in the yield of nine basis points, according to FSDH Capital. #Bond Yield Dips to 11.79% after DMO Auction

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