Market Witnessed Renew Appetite for Bonds despite High Inflation Rate

Market Witnessed Renew Appetite for Bonds despite High Inflation Rate

Nigerian fixed income market witnessed a renewed appetite for local bonds Tuesday despite negative inflation rate surprise.

The Bureau of Statistics report indicated that consumer price index rose 14.23% for the month of October, a 53 basis point above the previous month.

As expected, analysts hinted that interbank funding pressures remained benign today as financial system liquidity opened substantially higher at N507.7bn from N298.8bn on Monday.

Liquidity was boosted by open market operations (OMO) repayment worth N269.4 billion by the Central Bank of Nigeria (CBN).

Consequently, interbank funding rates remained stuck at low single-digit, as the Overnight rate closed flat at 1.00% while the Open Buy Bank rate rose mildly by 25bps to 0.75%.

Chapel Hill Denham expects funding pressures to remain subdued until Friday, when the CBN is scheduled to hold the bi-weekly retail FX auction.

The firm however hinted that despite the negative inflation surprise yesterday, analysts saw a renewed appetite for bonds.

Meanwhile short term rates traded flat.

At the front end of the curve, the Nigerian Treasury Bill (NTB) benchmark curve closed flat at an average of 0.10%, while the OMO curve eased slightly by 1bp to 0.12%.

In the bond market, yields on benchmark bonds compressed by an average of 5bps to 4.23%, due to renewed interest at the belly (-8bps to 4.31%) and long (-2bps to 6.05%) end of the curve. 

All eyes will be on the Debt Management Office (DMO) bond auction holding Wednesday as investors will be hoping to gauge the DMO’s aggression.

Particularly, in view of large OMO maturities due in December.

Based on the bond auction circular published last week, the DMO plans to raise up to N80bn, split equally at N40bn between the 15-year MAR 2035 reopening and 25-year JUL 2045 reopening.

The previous auction cleared at 4.97% and 6.00% respectively.

“We expect the auction to clear at lower yields, given the supportive liquidity backdrop”, Chapel Hill Denham stated.

Read more: Nigeria’s Headline Inflation Rate Rises to 14.23%

Market Witnessed Renew Appetite for Bonds despite High Inflation Rate