Nigeria’s Debt Securities Market Strengthens despite Concerns
In contrast to expectations, Nigeria’s fixed income market strengthened amidst concerns over the direction of the yield on local assets, analysts said.
In August, the fixed income market opened on a bearish note, with yields rising in response to the July monetary policy decision that raised the benchmark rate by 50bps to 26.75%, Meristem Securities Limited said in a review.
Contrary to bearish expectations projected by ARM Securities Limited, analysts noted that market exhibited remarkable strength in August 2024.
Despite concerns about rising yields due to economic pressures, both the Nigerian Treasury bills and FGN bonds segments witnessed robust demand. The Nigerian Treasury bills market saw a significant decline in average yields, decreasing by 397 bps month-on-month to 21.21% in August, 2024.
Fixed income analysts said this was driven by increased investor interest and repricing across all tenors. At the short end of the curve, yield on Nigerian Treasury bills fell by 307bps in August.
Yield also sink by 430bps at the belly of the curve due to increased demand for naira asset while longer tenor asset lost 349bps month on month.
The month saw the execution of four primary market auctions, consisting of two Treasury Bills (T-Bills) and two Bonds, including a domestic FGN bond and the introduction of a domestic dollar bond.
Additionally, the monetary authorities focused on managing system liquidity and attracting foreign inflows by conducting two Open Market Operations (OMO) auctions.
However, towards the end of the month, yields began to decline, indicating the effectiveness of the government’s debt management strategy. Analysts said the average yield in the FGN bond market fell by 80 basis points to 18.96% in August.
In a review, ARM Securities Limited said the decline in bond yields suggests a strong appetite for longer-term securities, possibly fueled by expectations of declining inflation and less hawkish CBN.
Overall, the Naira fixed income market concluded August on a positive note, with the average yield contracting by 239bps to 20.08%.
Analysts noted that the strong investor appetite for government securities, as evidenced by the significant drop in yields across the Treasury bills and FGN bonds markets, also highlights the resilience of the fixed income market amid challenging economic conditions.
In September 2024, analysts at ARM Securities Limited anticipate a moderate increase in liquidity in the Nigerian fixed income market. This is primarily due to the maturity of NGN568.20 billion in Treasury bills and N600.99 billion in bond coupon payments.
Fixed interest securities analysts across the Broadstreet maintained that investors’ sentiment will likely be influenced by expectations surrounding potential interest rate changes ahead of the CBN MPC meeting. #Nigeria’s Debt Securities Market Strengthens despite Concerns Liquidity: Banks Drive Yield Surge with T-Bills Selloffs
