Fixed Income: Investors to Maintain Preference for Short-term Offers

Fixed Income: Investors to Maintain Preference for Short-term Offers

Analysts at Chapel Hill Denham said investors are likely to continue to express preference for short dated securities amidst vulnerable economic fundamentals.

In the money market, rates trended marginally lower, and remained within low single digits, even as financial system liquidity opened substantially lower at N287 billion compare to N481bn in the previous day.

Commenting on the market behaviour, analysts expressed believe that liquidity was supported by Open Market Operations (OMO) maturities totaling N250bn that hit the system.

“We expect funding pressures to increase significantly tomorrow, as a result of the scheduled retail FX auction”, Chapel Hill Denham stated in a note.

Chapel Hill explained that sentiments were broadly bullish in yesterday’s trading session, albeit skewed towards short duration.Fixed Income: Investors to Maintain Preference for Short-term Offers

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At the front end of the curve, discount rates on Nigerian Treasury Bills (NTBs) dropped by an average of 9 basis point (bps) to 1.85% across benchmark tenors.

This was driven by mid (-4bps to 1.57%) and long (-21bps to 2.44%) day to maturity (DTMs).

Similarly, in the OMO segment, rates moderated by an average of 9bps to 2.63% across benchmarks, buoyed by repricing of short (-3bps to 2.18%) and mid (-24bps to 2.62%) DTMs.

Meanwhile, bond market yields trended lower by an average of 14bps to 7.48% across the benchmark curve, due to sustained short duration positioning (-48bps to 4.39%), against broadly flattish performance across intermediate and long duration maturities.

“We expect sentiments to remain driven by liquidity in the near term, with the size and frequency of OMO maturities expected to remain high till year-end.

“However, investors are likely to continue to express a preference for a short duration, amid vulnerable economic fundamentals”, analysts at Chapel Hill stated.

In a related development, pressures increased on the naira yesterday as the local currency weakened against the USD by 2.2% or N10 to 455 in the parallel market.

In the I&E Window, the naira weakened marginally by 0.04% or 17kobo to 386.17.

The official and secondary market intervention sales (SMIS) rates were unchanged at 379 and 380.69 respectively.

The external reserves stood at US$35.78 billion on 09 September 2020, increased 0.3% month to date.

Fixed Income: Investors to Maintain Preference for Short-term Offers

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