Profit Takers Unpack Naira Assets in Debt Market
Due to activities of profit takers, Nigeria’s debt market closed on a bearish note in March amidst buckets of unpriced risks – failed naira redesigned policy implementation and conundrum around 2023 elections.
Profit takers, majorly asset managers that continue to fine-tune portfolios strategy, unpacked government instruments to optimise returns, and drive liquidity as real return on naira assets plunged further due to worsening consumer price index.
With an accelerating inflation rate, the money pricing benchmark was adjusted but the yield curve reaction has been marginal, though spot rates were seen moving up, then down over liquidity pressures that resurfaced in the first quarter.
The month of March saw the average yield increase by 16 basis points to 13.4%, analysts at investment banking firm Afrinvest Limited said in a market report.
According to analysts, the bearish performance was largely driven by sell pressure on the short and mid-end of the curve as the average yield rose 56 basis points and 3 basis points respectively to 10.9% and 14.3%.
In contrast, the long end of the curve received buying interest from investors as the average yield fell 3bps to 15.5%, trading data from the local debt capital market showed.
In the primary market, the Debt Management Office (DMO) placed ₦360.0 billion bonds on offer as it reopened the FEB 2028, APR 2032, APR 2037, and APR 2049 instruments.
At the end of the auction, the DMO allotted ₦563.4 billion due to strong demand – the average bid-to-cover ratio printed at 2.2x.
The APR 2032 and APR 2049 instruments received the most buying interest (bid-to-cover ratios of 3.9x apiece) as bids came in at ₦355.6 billion and ₦349.4 billion respectively against the ₦90.0 billion on offer for each instrument.
Consequent to the strong market demand, stop rates for the APR 2032, APR 2037, and APR 2049 instruments fell 101bps, 440bps, and 156bps respectively to 14.90%, 15.20%, and 15.75%.
Meanwhile, the stop rate for Feb 2028 instrument gained a slight increase of 1bp to 14.00%. Afrinvest said likewise, bearish sentiment lingered in the SSA Sovereign Eurobonds space due to sustained hawkish posture in advanced economies amid pressured macroeconomic fundamentals.
Consequently, the average yield rose 116bps to 33.5%. The Zambia 2024 instrument saw the most selloffs as yield rose by 1138bps, m/m to 105.7% following stalls in talks with China regarding its debt restructuring.
Meanwhile, the Nigerian 2023 instrument received the most buy interest leading to a yield contraction of 206bps m/m to 7.2%. Elsewhere, the performance of the Corporate Eurobonds market was negative as average yields rose 37bps m/m to 5.9%.
In April, analysts at Afrinvest are expecting sentiment to remain weak in the domestic bonds market as investors fully price in the upward adjustment of the monetary policy rate.
For the Eurobonds market, we are less optimistic about improved outing due to lingering downside risk factors. #Profit Takers Unpack Naira Assets in Debt Market Naira Lost 11% as Banks Issue New Update on FX Spending
