Yield compression: analysts expect sustained bullish momentum

Yield compression: analysts expect sustained bullish momentum

Analysts said that despite the recent noticeable drop in yields across short term maturities (T-Bills and OMO), bond yields across tenors remain largely stable post-2019 Presidential elections against postulations of moderation.

It was observed that at the close of the week, average bond yields closed 20 basis points, bps, lower at 14.1% from 14.3% in the previous week.

This was largely due to investor appetite for long dated instruments remains underwhelming as the economy continues to grapple with structural weaknesses that have necessitated cautious trading by investors.Yield compression: analysts expect sustained bullish momentum

However, ahead of the transition to a new Government on May 2019 and the recent re-appointment of the CBN Governor, Godwin Emefiele, for a second term by President Buhari, the investment climate is becoming clearer for subsequent years.

Consequently, in the absence of short-term attractive yields, analysts are certain that attraction to relatively high yielding long-term bonds would force yield compression in the short to medium term.

The sovereign yield curve remains largely normalized at the short end while flattish at the medium to long end.

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Afrinvest said; “as we expect long term yield to compress over the short to medium term, positioning in long duration bonds on the term structure would offer the best advantage for investors.

“Our fair projection is at least a 200 bps moderation in yields over the next 2 quarters which qualifies FGN Bonds with TTM (Term to Maturity) of 10 years and above for about 20.0% return over a 6-month horizon due to high modified durations of long dated bonds”.

In the Sub-Saharan Eurobonds space, positive signals around outlook on oil prices, following increasing global trade wars and tensions in Iran, may have impacted on sentiments as the market traded bullish across the sovereign and corporate instruments.

Also, in the sovereign Eurobonds space, 29 out of 30 instruments tracked by Afrinvest had declines in yields as Ghanaian, Ivorian and Nigerian instruments were the most subscribed with average yield moderating by 7bps, 7bps and 6bps week on week while average yield settled at 7.3%, 6.8% and 6.6% respectively.

Similarly, in the corporate Eurobonds space, 9 out of 10 instruments tracked by Afrinvest traded bullish as average yield closed 7bps lower to settle at 7.7%.

The most subscribed instruments were Access 2021, First Bank 2021 and Ecobank 2021 which shed 0.9% apiece followed by Fidelity 2022 and ETI 2024 which also had 0.8% moderation in yields apiece.

“We expect the bullish momentum to remain sustained into the coming week”, analysts remarked. 

Yield compression: analysts expect sustained bullish momentum

SOURCEJulius Alagbe , Analyst
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