Yields Mixed as Market Ponders on Policy Outlook
Godwin Emefiele, CBN Gov

Yields Mixed as Market Ponders on Policy Outlook

The average yields on Treasury bills and FGN Bonds instruments moved in mixed directions ahead of the Central Bank of Nigeria’s (CBN) final monetary policy in 2022. Also, Debt Management Office is at the edge with sustained participation in the local debt capital market in the year.

At the next monetary policy meeting of the apex bank, a slew of analysts told MarketForces Africa that it is more likely to see CBN maintaining the status quo. The money pricing dynamic has already been altered with 400 basis points interest rate hikes in the last two policy committee meetings.

Short-term and long-term lending rates has increased significantly while local banks continue to build loan portfolios due to improving risk appetites. In the money market, the Nigerian Interbank offered rate increased across the board for all maturities tracked as banks with liquidity requested higher rates, Cowry Asset Management stated.

Data from the FMDQ Exchange checked showed that the Open Buyback Rate (OPR) and the Overnight Lending Rate (OVN) widened further to 15.33% and 15.83%, respectively in the absence of any significant inflows to the system.

Opening market liquidity was reported at N297.1 billion on Friday. Call, overnight and repo rates closed within a range of 7% – 13%, as system liquidity tightened on the back of NTB and OMO auctions debits.

In the secondary market for Nigerian Treasury bills, trading activities ended on a mixed note, albeit with a bullish tilt. Market analysts said the average yield pared by a basis point to 10.6% over demand pressure in the 07-Sep-23 and 26-Oct-23 T-bills.

Across the curve, Cordros Capital analysts said the average yield contracted at the short (-1bp), mid (-1bp), and long (-1bp) segments following mild interest in the 87-day to maturity (-1bp), 178-day to maturity (-1bp), and 346-day to maturity (-2bps) bills, respectively.

Similarly, the average yield declined by 1bp to 10.2% in the OMO bills segment. At the OMO auction held on Thursday, the CBN offered and allotted N20 billion worth of OMO bills to market participants.

Auction results from the OMO auction showed that stop rates across the three tenors were maintained at 7.0% for 103-days OMO bills, 8.5% for 180-day OMO bills and 10.1% for 365-day OMO Bills. READ: CBN’s Naira intervention cost spike six times

In the bond market, the values of FGN bonds were relatively bullish for long-dated debt instruments as investors traded cautiously. The average secondary market yield expanded marginally by a basis point to 14.46%.

The yield curve slackens over buying interest on the 16 APRIL 2037 debt instrument. Across the benchmark curve, the average yield increased at the short (+2bps), and long (+3bps) ends as investors sold off the APR-2023 (+10bps) and APR-2037 (+18bps) bonds, respectively. Conversely, the average yield was flat at the mid-segments.

Meanwhile, the value of the FGN Eurobond cleared lower for all maturities tracked on bearish sentiment. Hence, the average yield rose by 0.08 percentage points to 11.51%.

Projecting into this week, market analysts expect rates in the money market to remain elevated primarily due to expected outflow from an FGN bond auction, FX retail auction and a possible cash reserve ratio (CRR) debits by the CBN. # Yields Mixed as Market Ponders on Policy Outlook

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