Bonds Yields Dip as CBN Rate on 364-Day T-Bills Rises

Bonds Yields Dip as CBN Rate on 364-Day T-Bills Rises

The Federal Government of Nigeria (FGN) bonds yields dip as prices rise due to buying interest in the secondary market in the just concluded week following the Debt Management Office (DMO) bonds auction conducted last week.

Amidst relatively cold trading sessions in the fixed income market space, the 10-year 16.29% FGN MAR 2027 instrument inched higher by N0.25 to N120.31 from N120.06, according to market data.

While the bond price jumped higher, yields on the instruments declined to 10.82% from 10.88%, according to a market report from Cowry Asset Management Limited.

Similarly, it was noted that the 15-year 12.50% FGN MAR 2035 bond instrument rose by N0.22 to N100.61 from N100.40 while its yield declined to 12.40% from 12.44%.

20-year 16.25% FGN APR 2037 debt and the 30-year 12.98% FGN MAR 2050 bond depreciated by N1.83, N2.01 and N0.67 respectively; according to analysts noted.

These bond instruments have their corresponding yields increased to 12.47% from 12.25% and 12.93% from 12.85% respectively.

In the money market, short term rates swung as a result of a seesaw movement in the financial liquidity position.   The overnight rate fluctuated in the double-digit region through the week, eventually rising by 683 basis points to close at 12.5% on lower system liquidity, according to Cordros Capital. 

The average liquidity level for the week settled at N19.03 billion compared with N78.37 billion in the previous week. This was due to outflows for the FGN bond auction worth N219.88 billion, Net Nigerian Treasury bills issuances valued at N9.08 billion and FX auction outflows.

The level of cash off was however offset by inflows from FGN bond coupon payments worth N160.32 billion in the week.  Cordros Capital analysts said in the new week, inflows from FAAC allocations totalled N448.46 billion and OMO maturities worth N20.00 billion are expected to hit the system.

This should boost system liquidity towards the end of the week and result in the overnight lending rate trending southwards at the end of the week, according to analysts. READ: T-Bills Yield Steadies on Thin Trading as Spot Rates Dip

Cowry Asset analysts however said they expect activity in the money market to be slightly bullish in the new week as the market expects a liquidity boost from the maturing N20 billion worth of OMO bills.

Market data shows that trading in the Treasury bill secondary market turned bearish this week due to weak system liquidity and market participants preparing bids for the week’s Treasury bill in the primary market auction conducted by the apex bank.

Consequently, Cordros Capital the average yield across all instruments expanded by bps to 3.8% – the average yield at the OMO segment expanded by 21 basis points to 4.2% but contracted by 8 basis points to 3.7% at the NTB segment.

At this week’s NTB PMA, the Central Bank of Nigeria offered N120.97 billion – N2.68 billion for the 91-day, N2.02 billion for the 182-day, and N116.27 billion for the 364-day – in bills.

Ultimately, the CBN allotted N130.05 billion – N2.22 billion for the 91-day, N8.23 billion for the 182-day and N119.61 billion for the 364-day bills – at respective stop rates of 1.74% (unchanged), 3.00% (unchanged) and 4.79% (previously 4.60%).

“We expect demand for T-bills to improve in the coming week as system liquidity becomes buoyant. Thus, we envisage a decline in the average yields on T-bills”.

Trading activities on FGN Bonds in the secondary market ended with bearish sentiments, as demand for debt instruments remained tepid, with only a handful of trades passing through during the week.

As a result, the average yield on FGN bonds expanded by 9 basis points to 11.2%.

Across the benchmark curve, Cordros Capital said the average yield expanded at the short (+14bps) and long (+6bps) ends following investors’ profit-taking activities on the MAR-2025 (+80bps) and APR-2037 (+22bps) bonds, respectively; but contracted at the mid (-2bps) segment as investors sold of the FEB 2028 (-5bps) bond.

The Debt Management Office (DMO) had on Monday conducted the April 2022 FGN bond primary market auction.  At the auction, instruments worth N225.00 billion were offered to investors through a new issue bond; APR 2032 bond (Bid-to-offer: 1.0x; Stop rate: 12.5%) and re-openings – 13.53% MAR 2025 (Bid-to-offer: 1.5x; Stop rate: 10.0%) and 13.00% JAN 2042 (Bid-to-offer: 3.0x; Stop rate: 12.9%).

Total subscriptions across the offer instruments settled at N409.41 billion, with the DMO eventually allotting instruments worth N348.58 billion (of which N128.70 billion was allocated to non-competitive bids), resulting in a bid-cover ratio of 1.2x.

“We maintain our view of an uptick in bond yields in the medium term, as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply”, Cordros Capital said. #Bonds Yields Dip as CBN Rate on 364-Day T-Bills Rises