Bonds, Treasury Yields Mixed amid Interest Rate Hike Expectation

Bonds, Treasury Yields Mixed amid Interest Rate Hike Expectation

FGN Bonds, Nigerian Treasury bills yield (NTB) and open market operations (OMO) bills curve swing both ways amidst the expectation that the central bank of Nigeria policy committee will hike the benchmark interest rate on Tuesday.

Inflation fighting took a fresh dimension with 400 basis points interest rate hikes in two consecutive policy committee meetings. However, the International Monetary Fund, IMF, believes the CBN would need to do more with an interest rate hike.

The multilateral lender cited the impacts of Nigeria’s social intervention on inflation, which it believes should be neutralised with a further interest rate hike. READ: Bonds Yield Prints at 14.6%, Naira Steadies

A number of fixed income analysts projected that the apex bank would further tighten monetary policy conditions as headline inflation hits 21.09% – far from the CBN single-digit inflation target of 6-9%.

Though at a steep level, inflation growth has moderated, according to data released by the National Bureau of Statistics. Consumer price index growth rate tempers after benchmark interest rate surge, and tightening on the ability of Nigerian banks to create credits as cash reserve ratio inched to 32.5% in September 2022.

The secondary market for FGN bonds ended with bearish sentiments, as the average yield expanded by 3 basis points to 14.33%.  Across the benchmark curve, analysts said the average yield expanded at the short (+10bps) end due to the sell-off of the APR-2023 (+102bps) bond.

A review of trading notes also showed that yield contracted at the mid (-11bps) and long (-10bps) segments as investors demanded the APR-2029 (-15bps) and MAR-2035 (-40bps) bonds, respectively.

In the money market, traders note indicated that Nigerian banks with liquidity requested lower rates, though, the Open Buyback Rate (OPR) and the Overnight Lending Rate (OVN) remained unchanged at 16.25% and 16.50%, respectively.

Thus, the Nigerian Interbank offered rate (NIBOR) fell for most maturities tracked by Cowry Asset Management.

Yesterday, the system liquidity settled at a net short position of N266.50 billion, according to Cordros Capital analysts. Amidst sustained pressures on liquidity position, the Open Buyback Rate (OPR) and the Overnight Lending Rate (OVN) remained unchanged at 16.25% and 16.50%, respectively.

Trading activities in the Treasury bills secondary market were mixed, albeit with a bullish tilt, as the average yield pared by 1bp to 10.6%, traders’ notes showed.

Across the curve, the average yield contracted slightly at the short (-1bp), mid (-1bp), and long (-1bp) segments following mild interest in the 80-day to maturity (-1bp), 171-day to maturity (-1bp), and 339-day to maturity (-2bps) bills, respectively. 

Similarly, the average yield contracted by 1bp to 10.2% in the OMO bills segment. Meanwhile, the value of the FGN Eurobond decreased for all maturities tracked amid renewed bearish sentiment. Hence, the average yield expanded by 0.57 percentage points to 12.49%.

At the Investors’ and Exporters’ foreign exchange (FX) windows, the Naira strengthened against the US dollar, gaining 0.07% to N445.38 from N445.67. Similarly, the Naira edged ahead of the dollar at the parallel market, climbing 0.51% from N784 to N780. # Bonds, Treasury Yields Mixed amid Interest Rate Hike Expectation

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