Renewed Investor Appetite Drags Short-Term Government Securities
The forces of demand and supply answers to calls in the short term instruments market last week as yield on financial securities moderated again on the back of renewed investors’ appetite.
Base on the pattern formed in the recent time, analysts say they are expecting some portfolio restructure in the short to medium term as rates in the short-term fixed income market (T-Bills and OMO) continue to moderate.
In particular, analysts at Afrinvest observed that investors are beginning to shift focus to long-term bonds in order to lock in at higher yields.
It said that during past week, unlike the March-2019 meeting, when monetary policy rate (MPR) was reduced to 13.5%, the CBN’s Monetary Policy Committee (MPC) resisted the temptation to further cut rate (which would have signaled the continuation of easing cycle) in line with expectations.
In coming to term with its decision, the MPC urged the CBN to put in place modalities to restrict banks’ access to government securities (Bonds, OMO and Treasury Bills) in order to increase credit creation in the economy and boost the development of the real sector.
Despite this development, activities in the market were bullish as average yield fell 9 basis points (bps) week on week from 13.93%, with short- and long-term instruments falling the most while average yield on medium term instruments rose.
Afrinvest noted that market activity was noticeably bullish on Monday (-5bps), Wednesday (-8bps) and Thursday (-8bps) while Tuesday (+8bps) and Friday (6bps) had a bearish outing.
Across the term structure, short-term bonds with less than one-year TTM had the most gain with average yield declining 69bps.
Medium term bonds traded bearish, yield up 20bps over the previous week while average yield on long term bonds was down by 2bps.
Although activities in the money market segment continue to shape sentiment, we remain optimistic on our projection of at least a 200bps moderation in average yield over a 6-month horizon.
Meanwhile, the Debt Management Office (DMO) held its May bond auction on Wednesday and re-opened three instruments – 5-year (APRIL 2023), 10-year (APRIL 2029) and the 30-year (APRIL 2049) bonds.
The 12.75 APR 2023 (offer – N35 billion, subscription – N45.9 billion, allotted – N27.4 billion, stop rate – 14.1%), 14.55% FGN APR 2029 (offer – N35 billion, subscription – N124.2 billion, allotted – N35 billion, stop rate – 14.2%) and 14.80% FGN APR 2049 (offer – N30.0billion, subscription – N100.9 billion, allotted – N48.9 billion, stop rate – 14.5%) bonds were oversubscribed by 1.3x, 3.5x and 3.4x respectively.
Demands were skewed towards the 10-year and 30-year bonds indicating renewed investor interest in longer term instruments, most especially from institutional Pension fund managers.
At the Sub-Saharan African (SSA) Eurobond space, performance was largely bullish across the 40 sovereign and 10 corporates we track.
Read Also: Ahead of impending yield compression, analysts observe bullish show across maturities
In the SSA sovereign market, yields moderated markedly with the exception of the South African 2019 instrument which rose by 20bps and will be maturing in the coming week.
The largest decline was seen in the Zambian 2024 and 2022 bonds as yields were lower by 1.7ppts and 1.8ppts respectively, followed by the Ghanaian 2049 bonds which dropped by 90bps.
At the corporate Eurobond segment, the story was not different as yields pared across board, save for the SEPLAT 2023 bond which closed flat.
The yields on Access Bank 2021 and First Bank 2021 bonds dropped the most with each shedding 90bps W-o-W. Fidelity Bank and ETI bonds trailed closely, shedding 80bps apiece.
“We expect investors to remain attracted to frontier and emerging market Eurobond instruments as the initial drive towards interest rate normalisation, particularly in the US, was halted on growth outlook concerns. Hence, we expect improved activity to sustain the moderating trend in yields across our universe”, Afrinvest said.
Renewed Investor Appetite Drags Short-Term Government Securities
