Yields on Bonds Rise as DMO Issues Borrowing Plan
Patience Oniha, Nigerian Debt Management Office Chief

Yields on Bonds Rise as DMO Issues Borrowing Plan

Average yields on Federal Government bonds spikes as the Nigerian Debt Management Office (DMO) published bond auction calendar for second quarter (Q2-2021), showing plan to raise up to N150 billion – N180 billion monthly over the quarter.

Analysts noted the discount rate on bond instrument expanded on upward repricing as fixed income market trade with bearish bias Wednesday just as liquidity tightening in the financial system persists.

It was observed that yields on bonds expanded across the benchmark curve by an average of 15 basis points to 10.71%, driven by upward repricing at the intermediate (+8bps to 11.20%) and long (+37bps to 12.11%) end of the curve.  

Following uncertainties around the monetary policy rates hold decision, the fixed income market traded with a bearish bias amid sustained duration apathy.

According to Chapel Hill Denham, discount rates on benchmark Nigerian Treasury Bills were unchanged at an average of 3.66%, while the Open Market Operations (OMO) curve expanded by an average of 11bs to 6.11%.

Recently, the Debt Management Office published the Q2-2021 bond auction calendar, showing plan to raise up to N150 billion – N180 billion monthly over the quarter. The bond auction is split evenly across the 10-year MAR-2027, 15-year MAR-2035, and 25-year JUL-2045 reopening.

In a report, Chapel Hill Denham noted the Nigerian bond market is effectively in a bear market – down by 26% from the peak attained in December 2020.

“We expect the bearish sentiment to extend into Q2-2021, mainly due to considerably weaker liquidity in the financial system. OMO maturities and bond coupon payments are expected to collapse by 86% and 53% to N365.5 billion and N216 billion respectively.

There are no scheduled OMO maturities in April, although bond coupon payments are substantial at N193 billion, coming in the second half of the month.

Meanwhile, interbank funding rates remained elevated at double digits today, amid constrained system liquidity.  The Open Buy Back (OBB) and Overnight (O/N) rates eased slightly to 12.67% and 13.50% from 13.50% and 13.75% respectively.

Some fixed income market analysts expect funding pressures are expected to remain elevated in the near term.

Equally, the Nigerian local currency continued to trade within a tight band at all segments of the FX market. In the I&E Window, Naira weakened marginally by 50bps or 0.12% to 411.00. 

Read Also: Bond Market Down 26% on CBN Hawkish Balance Sheet Policy

In the parallel market, the FX Rate pair traded flat at 485.00 as of writing. Similarly, FX rate remained unchanged in the official and Secondary Market Intervention Sale (SMIS) segments at 379.00 and 380.69 respectively.

Yields on Bonds Rise as DMO Issues Borrowing Plan