Fixed Interest Securities Assets Mix as Inflation Eclipses Returns

Fixed Interest Securities Assets Mix as Inflation Eclipses Returns

Trading activities in the fixed interest securities were mixed in the secondary market on Tuesday, resulting in divergence in benchmark yield movement as investors continue to search for yield repricing.  

Nigeria’s inflation rate surge has widened the real return on naira assets but the market has not seen the impacts of higher interest rates on fixed asset pricing. Detail from the market shows that a solid liquidity level support bonds, and T-bills buying in the primary market.

Spot rates were also impacted despite double whamming pressures from inflation and interest rate surge in the past 12 months and are more worrisome for consumer prices. Fund/Asset managers also face the negative impacts of dwindling local currency on their portfolios

In the Treasury bills space, the average benchmark yield remained subdued due to thin trading activities.  In the Bond space, fixed interest securities investors offloaded part of their portfolios in an effort to optimise their positions.

This pushed the benchmark yield in the secondary market higher.

In the money market, short-term benchmark rates steadied as the liquidity position remains robust. The Nigeria Inter-Bank Offered Rate decreased across most tenor buckets, Cowry Asset Management told investors in a note.

Consequent to healthy liquidity conditions, the open repo rate and the overnight lending rate remained unchanged at 1.36% and 1.14%, respectively as system liquidity closed at a net long position of N751.55 billion.

In the secondary market, the Nigerian Treasury bills’ true yield traded lower due to sustained buying pressure. Likewise, the average secondary market yield on T-bills moderated by a basis point to 6.33%.

Cordros Capital Limited said across the curve, the average yield closed flat at the short and mid segments but contracted at the long (-2bps) end following demand for the 247-day to maturity (-18bps) bill.

In the bond market, trading activities on FGN bonds were bearish, driven by selloffs in mid and long-dated bonds. Asset/Fund managers’ decision to unload FGN bond led to an average secondary market yield expansion to 12.46%.

Notably, the 10-year and 20-year borrowing costs yielded around 12.82% (from 12.64%) and 14.60% (from 14.16%), respectively, while the 30-year paper held steady at 14.69%, Cowry Asset stated in its market update.

Elsewhere, the value of FGN Eurobonds closed higher across most maturities, driven by sustained bullish activity. However, the average secondary market yield stayed unchanged at 12.98%.

Across the benchmark curve, Cordros Capital analysts noted that the average yield closed flat at the short end but expanded at the mid (+20bps) and long (+16bps) segments due to selling pressures on the APR-2032 (+42bps) and APR-2037 (+44bps) bonds, respectively.

Fixed Interest Securities Assets Mix as Inflation Eclipses Returns Nigerian Treasury Bills Yield Rises to 7%