Yields Mixed as Markets Price in Uncertainties on Naira Assets
The average yields on the fixed income securities closed mixed on Thursday as the financial system liquidity level remains under pressure as the market continues to price in uncertainties into the key financial assets.
With rising inflation and weak local currency joined by lower liquidity, local investors have been relatively caged taking market positions across assets. The equities market is relatively bearish while sell pressures persist in the fixed income market.
Debits for financial transactions in the market drag liquidity level lower continually, though analysts expect some inflow this week. Some traders projected that short-term rates will reduce this week on an expectation that there will be an inflow of N111.82 billion.
This sum is expected to come from the Federal Government of Nigeria (FGN) bond coupon total of N66.82 billion and open market operations (OMO bills) maturities worth N45.00 billion, according to Cordros Capital market note.
At the close of the market yesterday, the overnight lending rate was flat at 15.0%, as the system liquidity remained depressed, closing at a net short position of N223.57 billion, Cordros Capital said in a market note.
Data from the FMDQ Exchange confirms that the open buyback rate moves in a similar direction, keeping the average interbank rate in the double-digit region as the market continues to price in interest rate hikes booked by the monetary authority into financial assets.
Sustained weakness in the financial system liquidity has continued to push trading activities in a bearish region. Large numbers of Nigerian local banks have sold off Treasury bills assets and pitched their tent at the Central Bank of Nigeria’s standing lending facility.
Last week, open market operations (OMO bills) were auctioned. The CBN offered the market participants NN50.00 billion worth of bills. However, the auction closed with no sale. Cordros Capital analysts said they suspect the high bid range across all tenors was responsible for this.
On Wednesday, the CBN conducted a primary market auction of Nigerian Treasury bills to roll over N295.53 billion worth of maturing bills. READ: Naira Sheds Value on Maturing Political Uncertainties
Recall that at this month’s bond auction conducted by Debt Management Office, instruments worth N225.00 billion were offered to investors through re-openings of the 13.53% MAR 2025 bond at a stop rate of12.50%, 12.50% APR 2032 at a stop rate of 13.50% and 13.00% JAN 2042 at a stop rate of 14.00%.
Traders said demand improved relative to the previous auction, with a subscription level of N247.07 billion, translating to a bid-to-offer ratio of 1.1x as against bid-to-offer: 0.6x. MarketForces Africa reported that the DMO eventually allotted instruments worth N196.57 billion, resulting in a bid-to-cover ratio of 1.3x.
In the secondary market, trading activities on Nigerian Treasury bills were low-key, as the average yield remained at 7.8%. Similarly, the average yield was flat at 11.1% in the OMO segment, according to Cordros Capital.
FGN Bonds were also bearish as trading activities maintains a pattern. The average yield then expanded by 2 basis points to 12.7%.
Across the benchmark curve, the average yield was flat at the short and mid segments but expanded at the long (+5bps) end following profit-taking activities on the MAR-2036 (+35bps) bond. # Yields Mixed as Markets Price in Uncertainties on Naira Assets
