Bonds Yields Rise as CBN Positions to Re-engage Foreign Investors

Bonds Yields Rise as CBN Positions to Re-engage Foreign Investors

Following bullish session recorded on Monday, bond yields rose marginally as the Central Bank of Nigeria (CBN) position to re-engage foreign portfolio investors.

In a note, Chapel Hill Denham said yields rise across the benchmark curve by an average of 5 basis points (bps) to 8.75%.

Analysts at the investment firm attributed this to repricing at the short (+34bps to 6.14%) end of the curve.

Meanwhile, funding pressures eased slightly in the money market due to inflow from open market operations (OMO) repayment worth N112.3 billion.

The inflow which hit the financial system lifted liquidity to N214 billion from N107 billion previously.

As a result, the Open Buy Back (OBB) and Overnight (OVN) rates declined marginally by 50bps and 58bps to 9.50% and 9.67% respectively.

“Barring a cash reserve ratio debit or OMO auction by the central bank, we expect funding rates to ease slightly in subsequent sessions”, analysts at Chapel Hill Denham said.

In the fixed income market, sentiments were broadly mixed as short term rates closed flattish while bond yields rose marginally.

At the front end of the curve, discount rates across the Nigerian Treasury Bills and OMO curves closed flat at an average of 1.19% and 2.08% respectively.

However, bond yields rose marginally across the benchmark curve by an average of 5bps to 8.75%, mainly due to repricing at the short (+34bps to 6.14%) end of the curve.

Chapel Hill Denham noted that Nigerian bonds posted about 9.5% loss in January, taking cumulative loss since December 2020 to 20.5%.

However, analysts said the selling has been concentrated at the long end of the curve, leading to a bear steepening.

With yield curve at the steepest level in years, opportunity cost of short duration positioning has become increasingly expensive, thus making bonds attractive once again, analysts stated.

“As a result, we expect a better performance in the bond market in February”, Chapel Hill Denham added.

Notwithstanding, analysts said they are expect yields to normalize over the medium term, as the CBN positions to re-engage Foreign Portfolio Investors.

In the currency market, the Naira weakened marginally against the United States dollar in the I&E Window by 0.25% or N1.00 to 395.00.

In the parallel market, the naira to dollar pair traded flat at 480.00 as external reserves stood at US$36.40 billion.

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Bonds Yields Rise as CBN Positions to Re-engage Foreign Investors