Yields on Fixed Income Instruments Bump as Naira Tumbles
Average yields on some fixed income market instruments, notably treasury and bonds, see a decline again as the Nigerian local currency, naira, appreciates at the Investors and Exporters foreign exchange window.
Data from FMDQ shows that naira closed flat at N411.67 to a dollar at investors’ window but depreciated by 0.4% to N530.00 in the parallel market on Thursday while Nigerian banks quoted at N413.
Naira has continued to be facing pressure as the organised markets are yet to balance demand and supply of foreign currencies after the Central bank ends weekly foreign exchange supply to Bureau de Change.
As the Central Bank (CBN) mandates banks to channel dollar to legitimate customers, spreads in the currencies market has widened further, creating the possibility of arbitrage.
In the money market, robust liquidity in the financial system continues to drag interbank rates lower, a pattern recently seen with short term rates slow down to single digits.
The overnight lending rate contracted by 17 basis points to 4.83% in the absence of significant funding pressures on the system. Also, open buy back slides 17 basis points to close at 4.33%.
In the Treasury bill secondary market, Cordros Capital said in a market report that treading activities end on a bullish note.
Analysts spotted that the average yield on Treasury Bills contracted by 6 basis points to 4.5%.
Across the benchmark curve, the average yield contracted at the short (-4bps) and mid (-17bps) segments due to demand for the 84 day to maturity (-10bps) and 133 day to maturity (-85bps) bills but was flat at the long end.
Elsewhere, the average yield at the open market operations (OMO) segment was flat at 6.1%. Similarly, the federal government bond secondary market was also bullish as the average yield slowdown by 3 basis points to 11.0%.
Across the benchmark curve, analysts reported that average yield tapered at the short (-1bp), mid (-8bps), and long (-1bp) segments due to demand for the JAN-2022 (-3bps), FEB-2028 (-15bps) and MAR-2035 (-35bps) bonds, respectively.
Analysts polled by MarketForces Africa said average yields on fixed interest rates securities would see further moderation in the second half of 2021 in the absence of yield repricing catalysts.
Disinflation, financial system liquidity position and declining government borrowings via the local debt market are noted as key downside to upward yields repricing in the year.
Meanwhile, Naira continues On July 27, 2021, during the July 2021 Monetary Policy Committee (MPC) meeting, the CBN Governor announced an end to the weekly allocation and sale of foreign exchange to Bureau De Change (BDC) operators.
The CBN Governor attributed the decision to the round-tripping of the BDC operators. In response to the announcement, the exchange rate rose to N520/$1 from N505/$1 at the beginning of the month.
Read Also: Fixed Income Market Trades Flat as Naira Tumbles
Yields on Fixed Income Instruments Bump as Naira Tumbles
