Debt Market Trades Cautious over Disappointing Inflation Print

Debt Market Trades Cautious over Disappointing Inflation Print

Sentiments remained largely bearish in the fixed income/debt market as investors remained cautious, given the disappointing March inflation print, and expectation of a tighter monetary policy going forward, analysts said in a market report.

The National Bureau of Statistics reported that headline inflation rate jumped 18.17% year on year in March, marking 19 consecutive month on month uptrend from 17.33% reading for February.

In the bills segment, discount rates on benchmark Nigerian Treasury Bills (NTBs) closed marginally lower by an average of 3 basis points (bps) to 3.75%.

Analysts at Chapel Hill Denham said this was solely due to repricing of AUG 21 paper which fell 36ps to 2.80. However, the open market operations (OMO) curve expanded by an average of 15bps to 6.65%.

Similarly, in the bond market, the benchmark yield curve expanded by an average of 29bps to 12.27%, due to repricing across the curve.

On Friday, financial system liquidity opened in surplus of N49 billion compared to a deficit record of N219.9 billion yesterday.

However, funding pressures increased, as a result of provisioning by banks for the retail foreign exchange (FX) auction, according to analyst at Chapel Hill Denham.

Consequently, the Open Buy Back and Overnight rates expanded by 10.5% and 13.33% to 25.00% and 28.33% respectively.

“Funding pressures will likely ease next week, although money market rates are expected to remain elevated at double-digit. On Tuesday, N46.8 billion worth of OMO bills will mature”, analysts said.

Next week, Chapel Hill Denham hinted that all eyes will be on the bond auction scheduled to hold on Wednesday, April 21.

Nigerian Debt Management Office, DMO, is expected to offer N150 billion across three maturities, split evenly between the MAR 2027, MAR 2035, and JUL 2045 reopening.

Analysts noted that the last auction cleared at 10.50%, 11.50%, and 12.00%, saying odds are in favour of substantially higher marginal rates at the upcoming auction, possibly in excess of 150 bps.

In related development, the Nigerian local currency, Naira, continued to trade within a tight band at all segments of the FX market.

In the Investors and Exporters Window, the local currency weakened marginally against the United States dollar by 0.12% or 50 kobo to close at 411.00.

However, the foreign exchange rate remained unchanged in the official and Secondary Market Intervention Sale (SMIS) segments at 379.00 and 380.69 respectively.

In the parallel market, the Naira traded flat against the greenback at 482.00 while the nation’s external reserves sustained a recent upward trend, climbing to a 6-week high of US$35.20 billion (+1.1% month-to-date) on 14th April 2021.

Read Also: Inflation Rate Jumps to 18.17% after 19-Month Consecutive Rise

Debt Market Trades Cautious over Disappointing Inflation Print