Fixed Income Market Sees Flattish Yields as Naira Steadies
Average yields on fixed income instruments closed flattish on Monday as Nigerian local currency, naira, was steadied at N414.83 to a dollar in the investors and exporters window. Yields on securities have been under pressure due to steep inflation which rates on government instruments have failed to cover in the past two years.
Steady slowdown in headline inflation and the monetary policy committee decision to keep benchmark interest rates in the September meeting dim the possibility of yield repricing. However, it costs money to keep the money as investors settle for available returns in what some analysts call financial repression.
There have been deliberate efforts by the Nigerian debt office and the central bank to keep federal government borrowing costs in check, thus low issuance amidst the recent Eurobond raise.
But DMO thinks the Eurobond raise is necessary in order not to crowd out corporates from accessing funding via the local market. Some blue chips companies have been riding the low-interest rate environment to restructure their debt profiles with cheap alternatives – especially commercial papers.
In the money market, the overnight lending rate contracted by 125 basis points to 16.0%, which analysts at Cordros Capital relate to the absence of significant funding pressures on the system.
Analysts report stated that the Nigerian Treasury Bills secondary market was flat as the average yield on the instruments remained unchanged at 5.6%. Similarly, the average yield at the open market operations (OMO) segment closed flat at 6.4%.
In the bond space, trading activities in the secondary market was bullish as the average yield contracted by 8 basis points to 11.0%.
Across the benchmark curve, analysts spotted the average yield slowdown at the short (-26bps) and mid (-20bps) segments due to investors’ demand for the JAN-2026 (-34bps) and FEB-2028 (-37bps) bonds, respectively.
However, the average yield expanded at the long (+11bps) end as investors sold off the JUL-2045 (+53bps) bond.
Last week, the Nigerian Treasury Bills secondary market sustained its bearish trend amidst pressured liquidity levels which fell to ₦211.01 billion short on Friday, Afrinvest said in a market report, noted that sell-offs were witnessed on short- and medium-term bills at the early trading sessions of the week.
However, buying interest was recorded on the long-dated maturities as the average yield contracted 10 basis points week on week to close at 6.59%. Consequently, the average yield across all Nigerian Treasury Bills instruments inched 4 basis points to close at 5.61% last week.
This week, a total of ₦111.87 billion worth of maturing Treasury Bills will be rolled over by the Apex Bank in a Primary Market Auction on Wednesday, 30-Sep-21, across the 91-, 182- and 364-Day tenors.
“We anticipate improved activity levels in the Nigerian Treasury Bills secondary market this week, given the expected buoyant liquidity levels from maturing instruments in the financial system”, Afrinvest said.
Expected to boost the financial system liquidity, the market is expecting an inflow worth N111.87 billion from matured treasury bills, and N107.39 billion from open market operations.
Afrinvest analysts however advise investors to continue to position in relatively attractive bills across the curve while also looking out for possible corporate offerings.
Read Also: Treasury Yield Steadies as Fixed Income Market Swings Lower
Also, the federal government bonds secondary market performance turned bullish, as funds were channelled from unmet bids at the primary market auction at the just concluded week.
As a result, average yield across all maturities dipped 7 basis points in the week to settle at 11.23% from 11.31% the previous week, with the most buying interests recorded on the 17-Mar-27 and 22-Jan-26 maturities.
At the primary market auction, the Debt Management Office’s total offer of ₦150.0 billion was met with strong demand, recording an overall subscription of 2.2x.
In addition, the highest subscription at the auction was recorded in the 2050s which had ₦156.3 billion subscriptions. Furthermore, the DMO maintained the previous stop rate for the 2028s and 2036s, while the 2050s was improved to 13.00%, up +20 basis points from the previous close.
“We expect more buying interests, as investors anticipate lower yields on the back of reduced supply from the DMO in the near term, given the FGN’s Eurobond auction held last week”, Afrinvest analysts projected.
Fixed Income Market Sees Flattish Yields as Naira Steadies
