Bonds Yield Rises 20bps amidst Mixed Expectations
Patience Oniha, DMO, DG

Bonds Yield Rises 20bps amidst Mixed Expectations

Amidst the battle to save the soul of the Nigerian naira, investing interest in fixed interest securities continue to gather momentum. In the just concluded week, the FGN Bond yield rises 20 basis points following mixed expectations in the fixed income market. 

On one side, Pension Fund Administrators are positioning strongly at the segment along with local banks as yields repricing continues.

Recall, prior to the then low interest rate environment that was engineered on the back of the need to reflate the performance of the real sector, Nigerian banks had been the active players with large ticket amounts in investment securities.

Some banks had indicated a preference for investing in government securities to lending to customers to drive the real sector growth. The current era appears similar as the average yield on FGN Bonds is approaching 15%.

The difference this time is the implementation of the 65% loan-to-deposit ratio and the monetary policy decision to move the cash reserve ratio to 32.5% – both policies, according to analysts have a direct impact on local banks’ liquidity.

At the same, the Central Bank of Nigeria has tightened access to its discount window targeted at managing authorised dealers’ transactions in the primary market auctions with penalties for infractions.

In the just concluded week, bearish sentiments persisted in the FGN bonds secondary market as the average yield across all instruments expanded by 20 basis points to 14.5%. READ: Nigerian Banks Battle Liquidity Shortfall, Borrow from CBN Facility

In its market report, analysts at Cordros Capital highlight that investors’ anticipation of higher bond yields drove sell-offs across the short and mid-spectrum of the curve. Consequently, across the benchmark curve, the average yield inched higher at the short (+38bps) and mid (+35bps) segments.

This happened following profit-taking on the MAR-2024 (+105bps) and NOV-2029 (+37bps) bonds, respectively. Meanwhile, the average yield contracted at the long (-6bps) end, following investors’ interest in the MAR-2035 (-34bps) bond.

Analysts maintained a stance of an uptick in yields in the bonds market in the medium term, as both the FGN’s borrowing plan for 2022 and the expected fiscal deficit point towards an increased supply.

Trading data showed that the 15-year 12.50% FGN MAR 2035 bond, the 20- year, 16.25% FGN MAR 2037 debt, and the 30-year 12.98% FGN MAR 2050 instrument debt, gained N1.26, N1.94, and N0.30, respectively.

Their corresponding yields fell to 14.70% (from 14.95%), 15.74% (from 16.09%) and 14.95% (from 15.00%), respectively, according to Cowry Asset Management. On the flip side, the 10- year, 16.29% FGN MAR 2027, lost N1.16, and its corresponding yield rose to 14.60% (from 14.25%).

Traders also indicated that the value of FGN Eurobonds traded in the international capital market appreciated for all maturities tracked; the 10- year, 6.375% JUL 12, 2023, bonds.

The 20-year, 7.69% paper FEB 23, 2038, and the 30-year, 7.62% NOV 28, 2047, gained USD 0.94, USD 2.30, and USD 2.33, respectively. Their corresponding yields fell to 10.72% (from 12.08%), 14.03% (from 14.59%), and 13.34% (from 13.87%), respectively.

“In the new week, we expect yields to further moderate as local bond prices increase on the back of bargain-hunting activities amid the expected boost in financial system liquidity”, Cowry Asset projected. # Bonds Yield Rises 20bps amidst Mixed Expectations

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