Fixed Income Assets Yields Diverge as Naira Appreciates

Fixed Income Assets Yields Diverge as Naira Appreciates

 The average yields on naira denominated fixed income assets diverge as the local currency appreciates across the foreign exchange markets. At the Investors’ and Exporters’ foreign market space, market participants exchanged naira for a Unit of the United States dollar at N443, appreciating from N444.75 on Friday, according to data from FMDQ Exchange. 

Rising demand for foreign currencies retreated, according to some currencies traders in the markets with an expectation of stronger intervention in the FX markets.

The riotous FX trades seen last week came as speculators, and other non-invincible hands began to exchange naira at un-negotiated higher rates at the black market amidst the Central Bank of Nigeria’s plan to redesign the local currency.

In the money market, short-term rates declined strongly due to healthier liquidity in the financial system. Analysts’ notes showed that the overnight lending rate contracted by 133 basis points to 15.2%.

In the secondary market for trading the Nigerian Treasury, there was mixed sentiment following higher spot rates at the CBN primary market auction conducted last week.

Though the CBN auction offered was not fully picked but in the secondary platform, market participants traded with mixed sentiments, albeit with a bullish tilt, as the average yield pared by 1bp to 11.0%.

Across the curve, Cordros Capital said in a market report that the average yield contracted at the short (-1bp), mid (-1bp), and long (-1bp) segments due to mild interest on the 24-day to maturity (-1bp), 192-day to maturity (-1bp), and 318-day to maturity (-2bps) bills, respectively.

Also, a similar trading pattern was spotted in the open market operation segment as the average yield on OMO bills declined a basis point to 10.2%. READ ALSO: FGN Bonds, T-Bills Yields Mixed as Naira Crashes

With an expectation of higher issuance of government instruments in the Nigerian debt capital market following a plan to securitise CBN’s N20 trillion overdraft lifeline made available to FG, market analysts are predicting that yield will surge further.

The yield curve has been on a fresh stretch on account of rising inflation and a high interest rate environment engineered by the monetary authority to combat the worsening consumer price index.

After Debt Management Office failed to raise N225 billion from the bond auction in the previous week, trading activities in the FGN bond secondary market were bearish, as the average yield expanded by 11 basis points to 14.4%, Cordros Capital said in a note.

Across the benchmark curve, analysts said the average yield expanded at the short (+15bps) and mid (+36bps) segments following the sell-offs of the MAR-2024 (+36bps) and APR-2029 (+39bps) bonds, respectively.

Conversely, the average yield contracted at the long (-3bps) end as investors’ demanded the MAR-2035 (-35bps) bond. # Fixed Income Assets Yields Diverge as Naira Appreciates

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