Fixed Income Market Re-price Yields as Naira Depreciates
The fixed income market re-price yields as rates trend higher across market while the Nigerian local currency, Naira, depreciates at Investors & Exporters Window (IEW).
In anticipation of possible adjustment in yields, analysts are expecting investors to continue exiting their positions in search of opportunities to lock in higher yields.
This is coming at the back of the ongoing financial repression as investors apathy on instruments is becoming visible, though strong liquidity position keep the market moving.
In the week, Greenwich Merchant Bank confirmed in a note that the fixed Income market titled bearish this week as yields across markets rose by 200 basis points.
Thus, average yield on debt instruments printed at 5.7% from 3.7% in the previous week.
Although, analysts noted that the Nigerian Treasury bills space closed bearish week on week.
The market traded flattish in the first three sessions of the week as investors were cautious in the run-up to the Primary Market Auction (PMA) on Wednesday.
Following a better-than-expected spike in stop rates in the PMA, average yield rose by 50bps to 1.5% from 1.0% last week, triggered by selloffs across the curve.
“We recall that Stop Rates at the PMA cleared higher as investors sought higher returns”, Greenwich said.
Thus, the CBN sold the 91-day ₦24.7 billion, 182-day ₦16.1 billion, and 364-day ₦90.1 billion instruments at 1.0%, 2.0%, and 4.0% apiece.
This was against previous stop rates of 0.55% (91-day), 1.3% (182-day), and 2.0% (364-day), respectively.
Analysts said they observed that the total amount allotted at the auction valued at ₦130.9 billion was 77.1% of the offer of ₦169.8 billion.
Fixed Income Market Records Quiet, Soft Trading Session
Farther on, the open market operations (OMO) market sustained a bearish momentum that lasted until the CBN’s OMO sales on Thursday.
At the ₦169.0 billion PMA, analysts at Greenwich said they noticed that the Apex bank maintained the stop rates for the 362-day bill at 10.10%.
Also, it was noted that the Central Bank of Nigeria did not sell the bills at the upper range of bids just like it had done in the prior auction.
Overall, the OMO yield curve expanded by 4.7 percentage point week on week to 6.7% from 2.0%.
“Next week, we anticipate the maturity of OMO bills worth ₦260.2 billion to hit the banking system, furthering robust system liquidity”.
Funding pressures subsided this week, pegging the Open Buy Back and Over Night rate at 4.5% and 4.8% down from 17.5% and 18.0%, respectively.
Save the maturing OMO bills, analysts said they do not expect any significant inflow into the financial system and on that basis, thus project that funding pressure might intensify next week.
In the Bonds market, yields notched higher by 100bps week on week to log at 9.0% compared to its previous close of 8.0%.
The expansion is attributable to the re-pricing of instruments across the tickers on the expectation of a reversal of the low-interest rate environment that ushered in the New Year.
Across the market, the medium (+170bps), the short (+114bps), and long (+30bps) segments all struck a bearish chord from last week.
“In the new week, we expect investors to continue exiting their positions in search of opportunities to lock in higher yields.
“Even as they pay attention to the January Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS) which should be published early next week”, analysts said.
Importantly, Greenwich said market participants will be anticipating the Debt Management Office to offer ₦150.0 billion evenly split across the FGN MAR 2027, FGN MAR 2035, and FGN JUL 2045 instruments.
In the FX market, the Naira advanced at the Parallel market after maintaining the ₦480.00/USD rate for nearly two weeks.
Compare with previous week, the Naira improved by ₦2.80/USD to close at an average of ₦473.00/USD.
Meanwhile, at the Investors’ & Exporters’ Window (I&EW), the rate weakened by ₦5.27/USD as it averaged ₦400.83/USD compared to ₦395.56/USD last week.
Greenwich Merchant Bank note that Friday’s close of ₦404.67/USD is the weakest the Naira has traded since ₦410.25/USD on December 31, 2020.
However, turnover at the IEW firmed up by 66.2% week on week to a weekly average of USD333.16 million from USD200.4 million.
Fixed Income Market Re-price Yields as Naira Depreciates
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source https://dmarketforces.com/fixed-income-market-re-price-yields-as-naira-depreciates/