Treasury Rates- Income Hunters Take Bets to Debt Market

TREASURY RATES: Nigeria’s debt market has seen a flood of funds parked on several government borrowing instruments to reduce inflation bites on investors’ wealth. Risk-conscious income hunters took large bets into the fixed income market as higher rates reduced negative returns on investment.

The rate on one short-tenor Treasury bill surged as high as 19% at the Central Bank of Nigeria’s (CBN) primary market auction last week. Reversing the previous trend, the equities market slumped by more than N1.42 trillion as institutional investors rebalanced their portfolios.

Deposit money banks and foreign investors boosted demand for Treasury bills, according to details from the latest primary market auction results. It has been seven years that the authority sells Treasury bills at 19%, some fixed interest securities analysts told MarketForces Africa. The CBN is expected to hold a policy meeting on February 26, 2024.

There is an expectation across Broadstreet that the committee will hike the benchmark interest rate as inflation remains elevated at 28.92%. Market analysts said the recent spot rate jerk-up on 364-day bills signifies a return to orthodox monetary policy tools to curb inflation and the move to entice foreign investors back into Nigeria’s economy adds to the backdrop.

Cowry Research anticipates the current bearish trend in the equities market to persist as investors seek refuge in fixed-income instruments due to the high yields. The statistics office is expected to release inflation figures this week. By market consensus, the headline inflation rate is expected to surge following a change in FX pricing methodology that pushed the exchange rate above N1400.

Based on the FGN 2024 budget, the fiscal deficit is estimated at N9.1trilion which is 3.88% of the estimated nominal gross domestic product. The deficit is expected to be financed by new borrowings total N7.8 trillion, split as N6.1 trillion from domestic sources, and N1.8trn from external sources. 

The research arm of Coronation Merchant Bank Limited expects domestic fixed income yields to remain elevated.  For FGN bonds, analysts said they see yields at the mid-curve around 15.9% -16.3% and between 16.6% – 18.6% at the longer end of the curve over the next 3 months. 

In the secondary market, a total of 52,338 units of FGN bonds valued at N51.123 million were traded this week in 31 deals compared with a total of 98,426 units valued at N95.304 million transacted last week in 60 deals, Cedrus Capital said in a note. #Treasury Rates- Income Hunters Take Bets to Debt Market#

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