Yields on Fixed Income Instruments Slowdown as Inflation Drops

Yields on Fixed Income Instruments Slowdown as Inflation Drops

Yields on fixed income instruments slowdown on Monday as Nigeria’s headline inflation drops for the seventh consecutive months. According to analysts persistent decline in headline inflation reduce investors negative real return.

But yields across fixed instruments have been unstable due to market dynamics, healthy liquidity leading to oversubscriptions in both treasury and bonds primary market auctions.

Today, data from FMDQ Exchange indicates short term rates decline as liquidity pressures in the financial system seen last week eased.

The overnight lending rate (OVN) decreased by 1.50 per cent to close at 13.75 per cent as against the last close of 15.25 percent, and the Open Buy Back (OBB) rate decreased by 1.25 percent to close at 13.25 percent compared to 14.50 percent on the previous day.

Ahead of the monetary policy meeting next week, the National Bureau of Statistics (NBS) released its October 2021 inflation report, indicating a decrease of 0.64 percent in the headline inflation rate to 15.99 percent from 16.63 percent recorded in September 2021.

The Core inflation, which excludes volatile agricultural produce prices, stood at 13.24 percent in October 2021, down by 0.50 percent when compared with 13.74 percent in September 2021.

It is unlikely the Central Bank of Nigeria will alter the interest rate benchmark amidst disinflation despite the United States Federal Reserve $15 billion monthly bond-buying tempering. 

In the Nigerian Treasury bills secondary market, trading activities closed on a flat note, with the average yield across the curve closing flat at 5.18 per cent.

FSDH Capital said in a market note that average yields across short-term and medium-term maturities remained unchanged at 3.70 per cent and 4.62 per cent, respectively.

However, analysts noted that the average yield across the long-term maturities declined by 1 basis point, adding that Nigerian Treasury bills 25-Aug-22witnessed mild buying interest.

In the open market operations, the average yield across the curve decreased by 11 basis points to close at 5.51 per cent as against the last close of 5.62 per cent.

Analysts said average yields across medium-term and long-term maturities declined by 12 and 41 basis points, respectively. However, the average yield across the short-term maturities closed flat.

According to FSDH Capital, yields on 15 days to maturity bills fell with the 4-Oct-22 maturity bill recording the highest yield decrease of 45 basis points.

Also, the federal government of Nigeria (FGN) bonds secondary market closed on a mildly positive note today, as the average bond yield across the curve cleared lower by 1 basis point to close at 8.45 percent from 8.46 percent on the previous day.

Average yield across the short tenor of the curve decreased by 1 basis point, according to FSDH Capital.  However, the average yields across the medium tenor and long tenor of the curve increased by 1 basis point each.

 The FGNSB 10-MAR-2023 and FGNSB 11-MAR-2023 bonds were the best performers with a decrease in the yield of 3 bps each, while the 23-JUL-2030 maturity bond was the worst performer with an increase in yield of 6 bps.

Due to low catalysts that could drive yield repricing, analysts at FSDH Capital said the secondary bond market is likely to remain subdued in short term. # Yield on Fixed Income Instruments Slowdown as Inflation Drops

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