Treasury, FGN Bond Yields Rise over Weak Liquidity
The average yields on the federal government (FGN) bonds and the Nigerian Treasury bills maintained an uptrend as the declining liquidity position fostered further selloffs in the fixed income market ahead of the primary market auction on Wednesday where the Central bank is expected to roll over maturing bills worth N150 billion.
In the money market, short-term rates adjusted upward in the just concluded weak on account of persistently low liquidity in the financial system. Notably, large numbers of Nigerian banks have reduced their T-Bills holdings due to their demand for liquidity to meet regulatory requirements.
The overnight lending rate printed at 15.0%, a reflective of the unhealthy balance in system liquidity amid inflows from the federal accounts allocation committee (FAAC) disbursement of about N480 billion, according to traders’ notes reviewed by MarketForces Africa.
In a market note, analysts at Cordros Capital highlight that funding conditions averaged a net long position of N92.45 billion last week versus a net short position of N138.48 billion in the previous week.
A slew of fixed income analysts said they are expecting Nigerian Treasury bills worth N150.62 billion as well as an inflow from the open market operations (OMO) bills worth N5 billion to mature this week. READ: Yields on Fixed Income Assets Fall as Spot Rate Swing
“We expect activity in the money market to be slightly bullish as the market expects a liquidity boost from the maturing N155.62 billion worth of Treasury bills and OMO bills”, Cowry Asset said in a market note.
In the secondary market for Treasury bills, the tight liquidity forced treasury holders to sell instruments. This impacted the market as the average yield across all instruments expanded by 29 basis points to 8.5%, Cordros capital stated.
Across the segments, traders’ notes indicate that the average yield increased by 147 basis points and 29 basis points to 10.0% and 7.6% at the OMO and Treasury bills secondary markets, respectively.
Citing lower inflows as a basis for their projection, analysts said they expect bearish sentiments to continue to pervade the T-bills market and drive yields higher this week. “We expect market focus to be shifted to the Nigerian treasury bills primary market auction (PMA) holding on Wednesday”, Cordros capital said.
Activities in the FGN bonds secondary market remained bearish as the sell-offs of instruments across the curve persisted this week. Thus, the average yield across instruments inched higher by 29 basis points to close at 12.3%.
Trading data showed that the value of FGN bonds traded in the mixed bag for most of the maturities tracked. The 10-year, 16.29% FGN MAR 2027 instrument was bullish, closing the week at N115.87 as the yield declined 0.17%.
Meanwhile, the 20-year 16.25% FGN APR 2037 remained flat at N124.70 and its yield was unchanged at 12.53% from last week’s close. However, the 15-year 12.50% FGN APR 2035 debt instrument declined by N1.25 to close at N98.70 (from N99.95) and the yield closed at 12.70% (from 12.50%).
The 30-year 12.98% FGN MAR 2050 bond tanked by N0.10 to N98.70 from N98.80, while its yields closed at 13.49% (from 13.14%).
Analysts note to indicate that across the benchmark curve, the short (+9bps), mid (+36bps), and long (+43bps) dated instruments bore the impact of the sell-offs as investors took profits off the MAR-2024 (+18bps), FEB-2028 (+59bps), and JUL-2045 (+151bps) bonds, respectively.
Cordros capital traders expect an upward repricing of FGN bonds in the medium term, as both the FGN’s borrowing plan for 2022 and expected fiscal deficit point towards an elevated supply.
In its market note, Cowry Asset analysts said they expect the value of FGN Bonds, to increase further (and yields to fall) amid increased demand due to the forthcoming FGN Bonds Auction by the Debt Management Office.
Elsewhere, the OMO space was dry, as there was no maturity or refinancing of bills. Overnight funds, 1 month, 3 month and 6 Months tenor buckets rose to 14.93% (from 14.73%), 12.94% (from 11.19%), 10.50% (from 9.83%) and 12.59% (from 11.05%) respectively, according to Cowry Asset analysts note. # Treasury, FGN Bond Yields Rise over Weak Liquidity