Fixed Income Market Trades Flat as Naira Tumbles

Fixed Income Market Trades Flat as Naira Tumbles

The fixed income market turned bearish for the week, following selloffs seen across the Bond and the Nigerian Treasury bill segment just as there was weak outing in the equities segment.

Financial system appears to be adjusting to economic signals amidst changing fiscal and monetary policies directions in the country.

Investors are still searching for alternative investment windows where yields would be strong enough to compensate for high inflation rate.

Nigeria’s headline inflation rate which settled at 16.47% for the month of January has been projected to rise again.

Supply shock and coronavirus-induced stress have been tagged as major drivers of rising price level, according to the Nigerian central bank.

In its market note, Greenwich Merchant Bank said investors exited positions after a comment on the intent of the Apex bank to phase-out participation of international players in the OMO-bill market.

Though, the Central Bank of Nigeria debunked this claim but this is yet to resonate with investors who have already adjusted their investing moods.

Consequently, average yield in the fixed income market spiked marginally by 3 basis points (bps) to 5.6%, from 5.6% the prior week.

Also, analysts said the Nigerian Treasury bill secondary market caught the frenzy which led to selloffs across the tail of the curve, raising the average yield across the market marginally by 4bps to close at 1.5%, from 1.5% the week before.

In contrast, Greenwich stated that the Open Market Operation bill market livened, as investors scurried for available bills at the tail of the curve, following the comments of phasing-out participation.

In so doing, yields at the OMO bill market eased by 8bps on the average, to close the week at 6.0% from 6.1%.

“While we await the release of the Apex bank’s second quarter Treasury bills issuance calendar, we expect the CBN would rollover maturing bills worth about ₦460.2 billion across the 91-day to maturity (DTM), 182-DTM, and 364-DTM at superior rates in the second quarter.

Meanwhile, analysts recalled the CBN rolled over ₦4.1 trillion worth of maturing special bills at 0.5% for another 91-days.

Recalled that the CBN securitized the excess Cash Reserve Ratio (CRR) charge on Deposit Money Banks (DMBs) as “special bills” at 0.5% for 91 days, roll-able at the Apex bank’s sole discretion.

At the start of trade on Friday, the interbank system tightened in terms of liquidity following settlement obligation from the OMO-bill auction in the week.

As a result, Money Market rates spiked into double digits for the week, as the Overnight and Open Buy Back closed at an average of 15.8% juxtaposed with 6.0% in the prior trading week.

The Bond Market turned bearish for the week, following heightened selling interest across the head and the tail of the bond curve.

Consequently, the average bond yield steeped northward by 14bps to 9.4%, from 9.2% at the close of trading in the prior week.

The FX market traded sparsely in the week, as the Naira depreciated by ₦0.75 at the Investors and Exporter Window (I&EW), closing at ₦411.00/USD from ₦410.25/USD in the prior week.

In terms of turnover, the FX market eased by 51.2% week on week at the Investors & Exporters window to an average of USD45.9 million from USD94.0 million at the prior session.

On the flip side, the Naira strengthened by ₦2.00 at the Parallel Market against the Dollar, to settle at ₦480.00/USD from ₦482.00/USD in the prior week.

“In the coming week, we expect market players to continue to trade cautiously with mixed sentiment across the curve, while seeking opportunities to cherry-pick higher yielding papers across the curve”, Greenwich Merchant Bank stated.

In its report for February, 2021 Cowry Asset Management stated that Nigeria’s foreign exchange reserves fell by 3.31% from January to USD35.10 billion at the end of February.

Corporate Debts Securities Issuances Muted despite Low Interest Costs

The nation’s external reserves dragged despite increased crude oil prices over the same period – Bonny Light rose by 20.12% above January price to USD66.26 a barrel.

Consequently, Naira depreciated against the greenback in most forex market Segments in February – Naira slacked at the Nigerian autonomous foreign exchange (NAFEX) rate, BDC and parallel markets by 2.44%, 0.54% and 0.77% to N403.62/USD, N472.24/USD and N478.33/USD respectively.

However, the local currency was flat at N380.69 at the Interbank FX segment at the end of February, 2021.

Fixed Income Market Trades Flat as Naira Tumbles