Bond Yield Slides as Investors Demand Short-Dated Instruments
Federal Government of Nigerian (FGN) bond yield slides as investors demand short-dated fixed interest instruments. Average yields continue to adjust to demand amidst persistent drops in headline inflation rate and expectation that consumer price index would drop further for October reading.
As a result, the average yield in the FGN bonds market dropped slightly by 1 basis point to close at 11.32 per cent, according to analysts reports. Meanwhile, the Treasury bills segment witnessed a strong demand for 15 days to maturity instruments while heavy bets were placed on JAN-2022 short-dated bonds.
Amid elevated inflationary pressures, fixed-income investors are bringing forward bets that the Central Bank will begin to raise interest rates early next year following U.S Fed Reserve asset purchases tapering.
MarketForces Africa reported that the Central Bank monetary policy authority will meet between November 22 and 23, 2021 for the last time in the year. In the second market midweek, FGN bonds generally closed on a calm note as the average yield across the curve cleared lower 9 basis points to close at 8.36 per cent from 8.45 per cent on the previous day.
According to FSDH Capital, average yields across the short tenor and long tenor of the curve decreased by 11 and 2 basis points, respectively. However, analysts noted that the average yield across the medium tenor of the curve remained unchanged.
According to analysts market report, the FGNSB 15-MAY-2022 maturity bond yield decreased by 36 basis points. Analysts at FSDH Capital however projected that the secondary bond market may witness an uptick in trading activities in the short term due to improved system liquidity.
With better liquidity in the financial system, short term rates have made a persistent slowdown in the past days. On Wednesday, data from FMDQ Exchange shows that the average interbank rate dipped by 125 basis points to close at 1.75 per cent.
The decline followed a 1.33 per cent decrease in the overnight (O/N) rate to close at 2.00 per cent as against the last close of 3.33 per cent, while the Open Buy Back (OBB) rate decreased by 1.17 per cent to close at 1.50 per cent compared to 2.67 per cent on the previous day.
Money market rates are likely to remain subdued, FSDH Capital analysts estimated, barring any mop-up activity by the Central Bank of Nigeria – especially with cash reserves ratio debits on local banks for failing to meet 65 per cent loan to deposit ratio target.
Amidst a fresh issue, the Nigerian Treasury bills secondary market sees a decline in average yield across the curve, decreasing by 11 basis points to close at 5.22 per cent from 5.33 per cent on the previous day.
The average yields on Nigerian Treasury bills across short-term and long-term maturities declined by 7 and 22 basis points, respectively. However, the average yield across the medium-term maturities expanded by 8 basis points.
Yields on 12 bills compressed with the 26-May-22 maturity bill recording the highest yield decrease of 95 bps, while yields on 3 bills remained unchanged.
At the Primary Market Auction held today, the CBN offered T-Bills worth ₦150.81 billion across 91-day (₦4.80 billion), 182-day (₦7.98 billion), and 364-day (₦138.03 billion) tenors.
In the open market operations bills market, the average yield across the curve closed flat at 6.09 per cent, said FSDH Capital while noting that average yields across short-term, medium-term, and long-term maturities remained unchanged at 6.06 per cent, 5.93 per cent, and 6.68 per cent, respectively.
At the investors and exporters foreign exchange market, Naira appreciated by 0.08 per cent as the dollar was quoted at ₦414.73 as against the last close of ₦415.07.
Then, it was noted that most of the currency market participants maintained bids between ₦404.00 and ₦444.00 per dollar.
Today, Activities at the Eurobond market traded on a bearish note in today’s session following selloffs across the sovereign curve. As a result of this, the average yield climbed by 4 basis points to close at 6.60 per cent. #Bonds Yield Slides as Investors Demand Short-Dated Instruments
Read Also: Bond Rate Slides as Financial System Liquidity Pressure Eased
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