Yields Mixed as Market Sets to Price in Policy Tightening
The average yields across government instruments were in a mixed direction on Wednesday as fixed income market participants begin to price in monetary policy tightening.
The Central Bank of Nigeria’s monetary policy committee has increased the benchmark interest rate by 400 basis points or 4% between May and September 2022.
A slew of market analysts said the rate hikes beat expectations as the fight against rising inflation gets dirty amidst worsening local currency position in the foreign exchange market.
The rising inflation rate has reduced return on fixed income investment, causing investors to shy away from holding naira assets while seeking dollar-denominated investment alternatives.
‘The 400 basis points increase has not been fully priced into fixed income securities or any other naira denominated assets – it is more likely that there will be further yield repricing as market has seen a fresh catalysts”, analysts told MarketForces Africa.
In the money market, short-term rates were adjusted upward on Wednesday as liquidity in the financial system weakened. Data from FMDQ Exchange showed that the overnight lending rate expanded by 183 basis points to 16.8%, pushing the interbank rate higher.
“We expect rates in the money market to moderate slightly – on the back of expected inflow from Federal Accounts Allocation Committee disbursement (FAAC) and coupon payments”, Coronation Research said.
Furthermore, market analysts said they expect a reversal in money market rates towards the end of the week due to an expected FX retail auction and potential cash reserve ration debits.
CBN conducted a primary market auction amidst a tight funding position which kept trading activities on the Treasury bill market quiet. Investors and other market participants shifted their focus to the outcome of the auction, thus keeping the average yield flat at 7.4%.
Elsewhere, the average yield expanded by 88 basis points to 10.3% in the OMO bills segment.
In the bond market, trading activities were mixed, according to Cordros Capital but with a bullish bias as the average yield pared by a basis point to 12.9%. READ:Analysts See Policy Interest Rate at 14.5% in 2022
Across the benchmark curve, analysts at Cordros Capital said the average yield contracted at the short (-1bp) end as investors demanded the APR-2023 (-8bps) bond. Conversely, the average yield was flat at the mid and long segments – following the last debt instrument auctions.
At the latest primary market FGN Bond auction, the Debt Management Office (DMO) offered N225 billion in the market but allotted N229.2 billion worth of instruments through the re-openings.
Debt Office reopened 13.53% FGN March 2025 for 13.5%; up from 12.5%, 12.50% FGN Apr 2037 at spot price of 13.8%; from 13.5% and16.2% FGN Apr 2037 (14.5%). The auction was oversubscribed as there was increased buying interest from investors. In the currencies market, the naira was flat at N436.37 at the Investors and Exporters FX window.
#Yields Mixed as Market Sets to Price in Policy Tightening#
