FGN Eurobond, T-Bills Yields Crashing, Naira Steadies
The rising headline inflation rate continues to pepper the quality Naira assets further as the average yields on fixed interest rate instruments crash, widening investors’ negative real returns.
MarketForces Africa reported that Pension Fund Administrators have raised their respective risk appetite, according to National Pension Commission data on pension assets which dictate managers are taking positions in banks placements, and exiting the Treasury bills space.
Today, the Nigerian local currency, naira, traded steady for the third consecutive day at the Investors and Exporters foreign exchange window at N416.50 as Federal Government Eurobond yield fell due to heavy positioning.
Following Russia’s invasion into Ukraine that distorted the global financial markets, trading activities on FGN Eurobonds have been mixed – with seesaw movement on the yield curve as uncertainties persist in the market.
Sophisticated investors would prefer taking position in the Eurobond instruments in order to protect portfolios from falling naira assets, investment banking experts explained to MarketForces Africa following a rise in the headline inflation rate.
Headline inflation rate for the month of February 2022 inched up 10 basis points to 15.70%, thus widening negative real return earned by investors in the fixed income market.
Primary market auction conducted by the Central Bank of Nigeria (CBN) has seen spot rates dropping persistently, though investors had expected yield repricing due to FG borrowings.
Healthy liquidity among other factors has kept yields subdued across markets save for the open market operations segment where spot pricing appears to be stable.
Today, activities at the Nigerian Treasury bills secondary market was bullish with the Mar 2023 paper getting the most demands, Alpha Morgan Capital said in a note.
However, the Jun 2022 and Feb 2023 papers saw some traction as well, traders said. Consequently, the average rate dipped by 23 basis points to close at 3.26%.
In the money market, the average interbank rate climbed by 12 basis points to close at 5.00% following pressures on the financial system liquidity position.
Market data from the FMDQ Exchange platform shows that the open Buy Back rate and the overnight lending rate climbed by 8 basis points and 17 basis points to close at 4.83% & 5.17%, respectively.
Amidst a relatively quiet trading session in the fixed income market, activities at the FGN bond secondary market was somewhat mixed. READ: T-Bills Yield Steadies as Pressure on Naira Slowdown
Traders said there were pockets of trades witnessed across the yield curve, albeit with a balance as the average yield remained flat, closed at 10.41%.
In the Eurobond market, trading activities at the FGN instrument was mostly bullish with demands seen across the sovereign yield curve except for the Jun 2022 instrument that witnessed sell-side pressure.
In sum, the average yield was down by 14 basis points to close at 7.63%. Elsewhere, the average yield was flat at 3.8% in the OMO segment. #FGN Eurobond, T-Bills Yields Crashing, Naira Steadies