Fixed Income Yields Mixed as Naira Weakened
In the secondary market, the average yields on fixed instruments closed mixed as the naira weakened to N419 to a United States dollar last week. The local currency had peaked at the Investors and Exporters’ foreign exchange window.
In the parallel market, the naira also weakened to N592 to a dollar. Meanwhile, short term rates trended downward in the money market last week. The average interbank rate dipped as open buy back and overnight lending rates tracked lower.
The overnight rate ended the week lower, crashing by 7.58 percentage points week on week to 4.9%, according to market data.
In a market report, Cordros Capital said the contraction was supported by inflows from FAAC allocations worth N448.46 billion and OMO maturities valued at N20.00 billion which subdued outflows for Central Bank of Nigeria’s (CBN) weekly OMO and FX auctions.
“We expect the OVN rate to trend upwards, as the N40.00 billion expected from OMO maturities may not be sufficient to offset the outflows from CBN’s auctions – NTB, OMO and FX”, said analysts at Cordros Capital.
Trading activities in the Treasury bills secondary market were bullish, as the buoyant system liquidity drove demand for bills, traders’ notes for the week showed. READ: Naira Appreciates Against Dollar at Official FX Window
Thus, the average yield across all instruments contracted by 3 basis points to 3.8%. Across the segments, Cordros Capital analysts said the average yield contracted by 12 basis points to 4.1% at the OMO, while the NTB average yield was flat at 3.7%.
After five weeks of break, the apex bank held an open market operation primary market auction. At the OMO auction, the CBN offered and allotted N50.00 billion worth of OMO bills to participants and maintained stop rates across the three tenors – 110 day to maturity (DTM) for 7.0%, 187DTM for 5.8% and 362DTM for 10.1% – as with prior auctions.
“We expect yield in the T-bills market to trend upwards, with system liquidity expected to be tight in the coming week. We believe the outcome of the Nigerian Treasury Bills auction scheduled for mid-week will shape sentiments”, according to Cordros Capital.
At the auction, the CBN will roll over N127.47 billion worth of instruments to market participants. Trading in the secondary market was broadly bearish this week, as demand for FGN bonds remained tepid.
Analysts believe this is reflective of expectations regarding higher yields in the near term. Consequently, the average yield expanded by 12bps to 11.3%. Across the benchmark curve, the average yield expanded at the short (+4bps), mid (+24bps), and long (+3bps) ends as investors took profit off the MAR-2027 (+28bps), FEB-2028 (+30bps), and MAR-2036 (+10bps) bonds, respectively.
Cordros Capital maintain an expectation of an uptick in yields in the bonds market, as both the FGN’s borrowing plan for 2022 and expected fiscal deficit point towards an elevated supply. #Fixed Income Yields Mixed as Naira Appreciates