Debt Investors See Mixed Yields Ahead of DMO, CBN Auctions
Trading activities in the fixed income market ended on a mixed note ahead of the Debt Management Office (DMO), and the Central Bank of Nigeria (DMO) primary market auctions scheduled for midweek.
Yields were mixed as debt investors positioned to participate in the Nigerian treasury bills and federal Government of Nigeria bonds auctions.
With the expectation of the two government agencies coming to the fixed income securities at the same, some analysts think the pressure on spot rates could be minimal amidst a moderate pressure on liquidity position in the financial system.
A strain on financial system liquidity was experienced today as short term rates adjusted upward – average interbank rate was on the back of increased open buy-back and overnight lending rates.
Today, the overnight lending rate increased by 250 basis points to close at 14.25 per cent as against the last close of 14.00 per cent, according to data from the FMDQ Exchange platform.
In the same manner, the Open Repo rate also increased by 250 basis points to close at 13.75 per cent compared to 13.50 per cent on the previous day.
The money market was wry up despite an inflow of N40.00 billion from Open Market Operations (OMO Bills) repayment as FSDH Capital the money market rates are likely to remain elevated in the near term.
In the Treasury bills space, trading activities in the secondary market closed on a flat note as investors begin to prepare for the CBN auction scheduled for Wednesday.
Consequent to a cold outing, the average yield across the curve remained unchanged at 4.48 per cent. Average yields across short-term, medium-term, and long-term maturities closed flat at 3.51 per cent, 3.74 per cent, and 5.18 per cent, respectively, according to FSDH Capital note.
The CBN will conduct Primary Market Auction to roll over Nigerian T-bills maturities worth N5.86 billion across 91-day (N0.96 billion), 182-day (N1.10 billion, and 364-day (N3.80 billion) tenors.
In the OMO bills market, analysts at Cordros Capital note shows that the average yield across the curve was unchanged at 5.5 per cent. Average yields across short-term, medium-term, and long-term maturities remained unchanged at 5.47 per cent, 5.51 per cent, and 5.54 per cent, respectively, FSDH added in a note.
Ahead of Debt Management Office issuance, the Federal Government of Nigeria (FGN) bonds secondary market ended bullish as average yield contracted again.
Analysts noted that average bond yield across the curve cleared lower by 7 basis points to close at 8.07 per cent from 8.14 per cent on the previous day.
Average yields across short tenor and long tenor of the curve decreased by 10 basis points and 1 basis point, respectively, FSDH Capital stated in a note.
However, the average yield across the medium tenor of the curve remained unchanged, as per Cordros Capital. FSDH Capital sees the 27-APR-2023 maturity bond as the best performer with a decrease in the yield of 52 basis points.
Meanwhile, the FGNSB 13-MAR-2022 bond was considered the worst performer with an increase in yield of 28 basis points.
MarketForces Africa reports that yield and bonds price have an inverse relationship –when bonds yield falls price jumps due to increased demand. Also, lower demand for bonds drags bonds prices downward and yields spike.
Tomorrow, the DMO is scheduled to offer FGN bonds worth N100 billion through re-opening of 10-year (N50 billion) and 20-year (N50 billion) tenors, and the settlement will take place on December 17.
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