FGN Bonds: Bearish Sentiment Resurface as Average Yield Advances

Bearish sentiment resurface as average yield on Federal Government of Nigeria’s bonds advances to 8%, on tight system liquidity, says Afrinvest.

Against the backdrop of the liquidity squeeze, the rally in the domestic bond market also ended last week as average yield advanced 16 bps week on week to settle at 8.0%.

Specifically, Afrinvest said selloffs were more pronounced on the short- dated bonds following 136 basis points gains on the 27-Apr-2023, 111 bps on 15-Jul-2021, and 84 bps on 14-Mar-2024 instruments.

Conversely, yields on medium and long-term bonds declined 12 bps and 3 bps week on week respectively due to mild buying interests.

Afrinvest stated that going into the week, the firm envisages ₦105 billion inflows from bond coupon payments to stimulate demand as investors seek to re-invest some of their funds amidst the relatively attractive yields across the yield curve.FGN Bonds: Bearish Sentiment Resurface as Average Yield Advances

Furthermore, analysts anticipate the release of the Q3:2020 FGN Bond issuance calendar by the Debt Management Office which could also sway market sentiments.

The investment firm advises Investors to trade guardedly.

Meanwhile, the Nigerian Treasury Bills secondary market last week traded with mixed sentiments largely driven by depressed liquidity levels.

At the start of the week, system liquidity opened negative at – ₦95.2 billion following the previous week’s cash reserve ratio (CRR) debit by the CBN.

Treasury Bills Average Yields Drop Further

This triggered mild selloffs as well as increased borrowings from the CBN’s standing lending facility which further worsened system liquidity (- ₦273.6 billion) on Wednesday.

However, sentiments slightly improved on Thursday as combined inflows from Open Market Operations (OMO) maturities worth ₦ 92.5 billion and a late CRR refund of about ₦300 billion ushered in trickles of demand on the short- term bills.

Overall, average yield across the yield curve ticked higher by 2 bps week on week to settle at 2.1% with system liquidity closing at ₦128.3 billion long on Friday.

Notably, Afrinvest said most of the selloffs occurred at the belly of the yield curve: 29-Oct-20 (+47 bps), 12-Nov-20 (+40 bps) and 26-Nov-20 (+33 bps) bills.

Looking ahead, the Apex bank is scheduled to roll over maturing NT-Bills worth ₦107.1 billion through a Primary Market Auction on Wednesday.

“We also expect an improvement in demand due to inflows from both maturing OMO instruments totaled ₦146.9 billion and bond coupon payments totaled ₦105 billion.

“Notwithstanding, we expect investors to trade cautiously in anticipation of the PMA.

“Additionally, the CBN may likely conduct an OMO auction to keep rates and system liquidity in check”, Afrinvest said.

FGN Bonds: Bearish Sentiment Resurface as Average Yield Advances

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