Debt Market Yield Repricing Persists ahead of DMO Auction
Patience Oniha, DMO Chief

Debt Market Yield Repricing Persists ahead of DMO Auction

Amidst rising inflation rate, the Nigerian debt market yield upward repricing persists ahead of the Debt Management Office, DMO, auction schedule for Wednesday.

At the debt market, sentiments were broadly mixed as short term rates closed flattish, while the upward yield retracement in the bond market persisted.

Today, the T-bills space traded on a bullish note with yields declining by 4 basis point (bps) to average 1.5%.

Greenwich Merchant Bank said in a report that the market was influenced by buying interests on the 15-Jul-21 instrument (-75bps), whereas trade elsewhere settled flatly.

Also, the financial system liquidity rose 161.1% to ₦463.3 billion buoyed by an open market operations (OMO) repayment of ₦207.8 billion.

As a result, market data shows the Open Buy Back and Over Night rates declined to 2.5% and 2.8% apiece from 4.0% and 4.3%.

Chapel Hill Denham in a commentary said system liquidity will likely tighten in subsequent sessions due to the Debt Management Office’s bond sale holding Wednesday (settling on Friday) and CBN’s retail FX auction on Friday.

In the OMO market, yields continued to ease as investors positioned on the short end of the market. Thus, the average yield fell 13bps to 6.3% from 6.5% yesterday.

Ahead of the DMO auction tomorrow, the Bond market traded on a bearish note, as yields rose across the short (+44bps) and the long (+11bps) segments of the market.

Overall, the average yield notched higher by 16bps to 9.3%, although the belly of the curve saw some buying interests (-2bps).

The 22-Jan-26 instrument was the most sold (+131bps).

At the auction tomorrow, analysts at Greenwich said they are expecting strong bids as the DMO offers ₦150.0 billion evenly split across the FGN MAR 2027, FGN MAR 2035, and FGN JUL 2045 instruments.

The last auction cleared at 7.98%, 8.74% and 8.95% respectively.

“We expect the auction tomorrow to clear higher by about 170bps in line with secondary market trend”, Chapel Hill Denham said.

In the currency market, the naira remained unchanged at the official and secondary market intervention sales windows to ₦379.00, and ₦380.69 respectively.

The naira to dollar pair was also unchanged at ₦409.67 and ₦473.00 at the I&E Window and parallel market respectively.

Following a 1.85% month to date decline, the external reserves stood at US$35.63 billion.

Yields Rise as CBN Issue ₦4trn worth of Special Bills

The National Bureau of Statistics reported that headline inflation rate maintained upward trajectory for the 17th consecutive month, surged by 71bps to a 45-month high of 16.47%.

Reacting to the development, Chapel Hill Denham said risks still biased to the upside over the near term due to an anticipated increase in the prices of petroleum products, subsisting food supply challenges, and low base effect.

Debt Market Yield Repricing Persists ahead of DMO Auction