Yields on Bills, Bonds Diverge as Naira Sinks

Yields on Bills, Bonds Diverge as Naira Sinks

Amidst worsening headline inflation rate expectation for the month of September, the average yields on Treasury bills and government bond diverge while the Nigerian local currency sinks deeper.

At the investors and exporters foreign exchange (FX) window, naira rate crossed N440 at the official window, sold at N441.17 per United States dollar while parallel market traded at N740.

In the money market, pressure on short term rates eased moderately, though open buy back and overnight lending rate remained in double-digit mid-high on Tuesday.

Data from FMDQ Exchange shows that the overnight lending rate contracted by 50 basis points to 16.8%, following N10 billion inflow from OMO bills maturities.

Market analysts reported that opening market liquidity was reported at N213.8 billion on Friday. Thus, overnight and repo rates closed within a range of 16% – 23%.

“… We expect rates in the money market to remain elevated, as projected outflow is expected to outweigh potential inflow”, Coronation Research said in a note.

Projected outflow this week is expected from – an FX retail auction, Nigerian Treasury Bills primary market auction and a potential cash reserve ratio debit.

Meanwhile, analysts said they are also expecting inflow from OMO bills maturities, NTB maturities and FX refund.

In the secondary market, trading activities on Nigerian Treasury bills were mixed, according to traders note, albeit with a bullish tilt. On Tuesday, the average yield pared by a basis point to 7.3%.

Across the curve, Cordros Capital reported that the average yield was flat at the short end but contracted at the mid (-1bp) and long (-1bp) segments. READ:Naira Sinks at Official FX Window as External Reserve Falls

This followed mild interests in the 170-day to maturity (-1bp) and 338-day to maturity (-1bp) bills, respectively. Similarly, the average yield contracted slightly by basis point to 10.3% in the OMO Bills segment.

Trading activities in the FGN bond secondary market was bearish, as the average yield expanded by two basis points to 13.6%. Across the benchmark curve, analyst said the average yield was flat at the short end but expanded at the mid (+5bps) and long (+3bps) segments due to selloffs of the APR-2032 (+10bps) and JUL-2034 (+18bps) bonds, respectively.

MarketForces Africa reported that the average Nigerian Treasury bills yield increased by +17bps week on week to close at 7.3%.  Meanwhile, the average OMO yield declined by -2bps to close at 10.3%, according to several market notes reviewed.

In the secondary market for FGN bonds, the average yield increased by +24 basis points to close at 13.5%. Elsewhere at the Eurobond market, the average yield declined by -125 basis points to close at 13.1% over buying interest. 

# Yields on Bills, Bonds Diverge as Naira Sinks#