Fixed Income Market Trades Mixed as Yields Rise and Fall

Fixed Income Market Trades Mixed as Yields Rise and Fall

The Nigerian fixed income market trades mixed on Friday as securities holders see rising, falling and steadied yield across instruments in various segments.

Treasury bills space sees flatten yield, OMO Bills holders spotted drop in average yield after spot rates across instruments closed steadied at Central Bank auction but bond prices dropped, causing the yield to spike.

Generally, the financial system appears to be overstretched as both the fixed income and equity market move in a similar direction, causing some market observant to be asking what the investment theme for 2022 would look like.

This week, the equity market traded largely bearish as Nigerian Exchange left investors poorer but there is no respite in the alternative markets as well due to what returns hunters call financial repression in the fixed income space.

Today, the financial system liquidity strained, causing short term interest rates to increase albeit moderate – average interbank rate spike in the money market as both overnight and open buy back rates increased.

Data tracked from FMDQ Exchange shows that on Friday, the overnight lending rate increased by 25 basis points to close at 15.75 per cent as against the last close of 15.50 per cent.

Also, jumping twice the overnight rate, the Open Buy Back (OBB) rate increased by 50 basis points to close at 15.50 per cent compared to 15.00 per cent on the previous day.

Today, the Nigerian Treasury bills secondary market closed on a flat note with average yield across the curve closing flat at 4.51 per cent, according to various analysts’ market notes.

Meanwhile, FSDH Capital Limited note stated that average yield across the long-term maturities declined by 1 basis point. However, the average yields across short-term and medium-term maturities remained unchanged at 3.52 per cent and 3.74 per cent, respectively.

NTB 8-Sep-22 (-8 bps) maturity bill witnessed mild buying interest, while yields on 21 days to maturity bills remained unchanged, according to FSDH note.

OMO bills yield dips after a robust demand by market participants at the Central Bank of Nigeria (CBN) primary market auction (PMA) conducted on Thursday.

In the OMO bills market, the average yield across the curve decreased by 3 basis points in the secondary market to close at 5.48 per cent as against the last close of 5.51 per cent.

Average yield across the short-term maturities declined by 4 basis points FSDH note shows. However, the average yields across medium-term and long-term maturities remained unchanged at 5.55 per cent and 6.14 per cent, respectively.

OMO 15-Feb-22 (-29 bps) and OMO 8-Feb-22 (-10 bps) maturity bills witnessed buying interest, while yields on 12 days to maturity bills remained unchanged.  

The CBN held an OMO auction on Thursday, selling bills worth ₦37.00 billion across the 110-day (₦7.00 billion), 180-day (₦10.00 billion), and 355-day (₦20.00 billion) tenors with the stop rates remaining unchanged at 7.00 per cent, 8.50 per cent, and 10.10 per cent, respectively.

Analysts spotted heavy demand for OMO Bills as investors funds continue to seek better real returns. The OMO bills auctioned registered higher demand as result shows subscription level of 182 per cent (₦72.78 billion).

FSDH said demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 0.70x (110-day), 1.25x (180-day), and 2.66x (355-day).

Elsewhere, FGN bonds secondary market sees average bond yield across the curve cleared higher by 7 basis points to close at 8.00 per cent from 7.93 per cent on the previous day.

Average yields across short tenor and medium tenor of the curve increased by 9 basis points and 1 basis point, respectively. However, the average yield across the long tenor of the curve decreased by 1 basis point.

The FGNSB 11-DEC-2021 bond was the best performer with a decrease in the yield of 47 basis points, while the 23-MAR-2025 maturity bond was the worst performer with an increase in yield of 103 bps.

Going into next week, FSDH Capital maintained the firm’s position that the secondary bond market is likely to remain subdued in the short term. #Fixed Income Market Trades Mixed as Yields Rise and Fall

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