Yields Repricing Slows as Bonds, T-Bills Trade Cold
Amidst yield upward adjustment, the fixed income market was relatively quiet at the beginning of the new week after higher spot rates pricing was seen in the primary market auction for the Nigerian Treasury bills conducted last week – barely 24 hours after the monetary policy 150 basis points rate hike.
Recall the secondary market for trading fixed interest securities heated up last week in reaction to the Central Bank of Nigeria’s (CBN) aggressive policy adjustment after more than two years of dovish stance.
Market participants in the Nigerian debt capital market had been waiting for catalysts that will drive yield repricing as rising headline inflation widened negative real return on naira assets. Nigeria has been borrowing funds in the local market at a rate below the inflation rate, and some critics see the development as financial repression.
Some experts however believe government need not pay premium on issued instruments due to near-zero risk. Institutional investors, especially pension fund administrators and local banks have been key market drivers in the segment.
In the money market, short term rates are moving in line with market reality supported by improved liquidity in the financial system. The average interbank rate declined as a robust liquidity position in the financial system dragged open buy back and overnight lending lower.
On Monday, the overnight lending rate contracted by 33 basis points to 13.7%, following N5.63 billion inflows from FGN Bond coupon Payment, according to Cordros Capital. READ: Sharp Costs Pressures Burden Private Sector Activity –PMI
Last week Treasury bill sport rates were repriced upward on account of a higher interest rate environment. However, trading activities in the secondary market were quiet at the beginning of the new week.
The average yield was steadied at 3.7%, Cordros Capital told clients via email on Monday. Across the curve, traders said the average yield inched higher at the short (+1bp) end, as market participants sold off the 31-day to maturity (+7bps) bill; but was flat at the mid and long segments.
Similarly, the average yield was unchanged at 4.4% in the open market operation (OMO bills) segment. Trading activities in the FGN Bond market also ended on a mixed note, albeit with a bullish tilt, according to a market report.
On Monday, market data showed that the average yield pared by a basis point to 11.1% on accounts of a handful of demand for government bond instruments. Across the benchmark curve, Cordros Capital told clients that the average yield contracted at the mid (-2bps) and long (-2bps) segments.
This happened consequent to investors’ demand for the APR-2022 (-6bps) and JUL- 2034 (-15bps) bonds; but expanded at the short (+2bps) end following profit-taking on the MAR-2025 (+11bps) bond.
Elsewhere, in the foreign exchange market, the naira depreciated by 0.2% to N420.25 per dollar at the Investors and Exporters FX window. # Yields Repricing Slows as Bonds, T-Bills Trade Cold
