Bonds Rates Trend Higher over Pension Commission Directive

Bonds Rates Trend Higher over Pension Commission Directive

Bonds yields trend up in response to the National Pension Commission (PENCOM) new directive on Pension Fund Administrators’ marked to market bond portfolio, thus led to slight profit-taking, according to analysts.

This helped bond yields to rise marginally by an average of 1bp to 4.12%, specifically due to profit-taking on intermediate bonds, recorded 6 basis points to 4.14%.

Generally, sentiments in the fixed income market were broadly mixed amidst robust liquidity in the financial system.

On Friday, system liquidity opened substantially higher at ₦919 billion from ₦859 billion, despite the issuance of ₦90 billion open market operations (OMO) bills by the Central Bank of Nigeria (CBN) on Thursday.

Nonetheless, analysts said in line with expectation, funding pressures increased substantially due to provisioning by banks for the CBN’s bi-weekly retail FX auction which held Friday.

As a result, the Open Buy Back (OBB) and Overnight (OVN) rate surged by 507 basis points and 502 basis points to 5.70% and 6.40% respectively.

“We expect funding pressures to ease next week, bolstered by scheduled OMO maturity estimated at ₦243.77billion on Tuesday”, Chapel Hill Denham said.

However, the front end rates traded flat, as the Nigerian Treasury Bills and OMO benchmark curve closed flat at an average of 0.55% and 0.24% respectively.

Chapel Hill Denham said the borrowing target for November and December announced by the Debt Management Office (DMO) surprised to the upside.

“We expect bonds to remain defensive next week, in view of the subsisting robust liquidity in the financial system, and substantial OMO maturities next week with no meaningful net issuance scheduled to mop-up the liquidity”, Chapel Hill Denham said.

However, a rollover Nigerian Treasury Bill auction is scheduled to hold next week.

Based on the auction calendar, the DMO is expected to offer ₦147.8 billion compared to ₦167.82 billion maturing, implying a net maturity of ₦20 billion.

DMO indicated that the offer will be split between the 91-day (₦19.78 billion), 182-day (₦40.09 billion) and 364-day (₦87.94 billion) tenors.

The previous auction had cleared at record lows of 0.341%, 0.500% and 0.980% respectively

However, analysts said they expect the auction next week to clear at sub-1% level.

Similarly,   Naira exchange rate continued to trade within a tight band at the regulated segments of the FX market.

The currency pair closed flat at ₦386.00 and ₦379.00 in the  I&E Window and official window respectively.

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However, the local currency recovered slightly in the parallel market, strengthening marginally by 0.22% or ₦1.00 against the USD to ₦465.00 as of writing.

Bonds Rates Trend Higher over Pencom Directive