Bear goes T-Bills, bonds’ yields down on N168.8bn payment

BY CHARLES ABUEDE

Bearish sentiments held sway last week across all segments of the fixed income market as participants kept to the sidelines in the bonds market ahead of the scheduled primary market auction that is being held today (Monday) by the Debt Management Office (DMO) with minimal sell-side activities causing yields across the curve to rise week on week.

However, in the Nigerian treasury bills and OMO maturities markets, sell-offs were witnessed as investors began seeking higher returns which, in turn, led to an increase in the average yields; while the Nigerian naira traded mixed across the streets and I & E windows against the United States dollar.

Summating a stand from the expectations of analysts at Vetiva Capital Management, FSDH Capital Research and Afrinvest Research, “The naira should trade within its current band across market segments barring any market shock while yields decline should be seen across the bond space as a result of the N168.8 billion coupon payments this week; plus healthy demand from the PMA by the DMO on Monday, and bearish sentiment is expected to linger in the secondary T-Bills market as investors continue to re-price yields due to rising inflation.”

FX Market:
Across the foreign exchange markets last week, the performance of the Naira varied as the NAFEX rate at the Investors & Exporters (I&E) window depreciated 83 kobo week on week to N418.33 per dollar while at the parallel market, Naira appreciated N1 week on week to N589 per dollar. Also, the activity level in the I&E window was bubbly last week as total turnover rose 13.4 percent week on week to $627.6 million.

In the meantime, the FMDQ Securities Exchange FX Contract Market was quiet as the total value of open contracts was flat at $4.1 billion.

Money Market:
In the money market, the two measures of the short-term cost of funds among banks, the OPR and OVN, compacted by 583 basis points and 550 basis points week on week to 5.0 percent and 5.7 percent, respectively. As a result, the level of system liquidity rose 54.4 percent week on week to N319.8 billion, fuelled by the N226.1 billion SLF inflows. This development, in addition to the improved balances of banks and discount houses in the two days, fully offset the effect of the liquidity squeeze on Tuesday when drawn down due to the settlement of Repo at N60 billion and SDF N13.4 billion, compressed system liquidity level to N45.9 billion.

Nigerian Treasury Bills Market:
And getting into the Nigerian T-Bills secondary market, the bears ruled as the average yield ascended 28 basis points week on week to 3.8 percent while the short end of the curve observed the highest sell pressure, signposted by the 43 basis points week on week spike in yield to 3.3 percent. Behind, the yield on the mid and long end of the curve also spiked 30 basis points and 12 basis points week on week to 3.5 percent and 4.5 percent respectively, which saw the NTB 13-Oct-22 maturity bill decline by 17 basis points and witnessed maximum buying interest.

OMO Maturity Bills:
Elsewhere, the OMO bills market closed the week on a mildly negative note as the average yield across the curve cleared higher by six basis points to close at 3.9 percent from 3.8 percent on the previous close while the average yields across the medium-term and long-term maturities expanded by three basis points and 12 basis points, respectively. Though the average yield across short-term maturities remained unchanged at 3.06 percent, the OMO 14-Feb-23 24 maturity bill which rose 24 basis points witnessed maximum selling interest.

Bonds Market:
Diving into the FGN domestic bond market, market performance was bearish last week with sell pressure noted across the curve as investors stayed on the sidelines ahead of the bond auction slated for 25th April 2022. As a result, the average yield rose 15 basis points to 11.2 percent, rising the most at 41 basis points week on week at the short-end of the curve. The mid and long ends of the curve saw an uptick of 14 basis points and six basis points week on week, respectively. The 27-APR-2023 maturity bond was the worst performer with an increase in the yield of 115 basis points.

Meanwhile, as part of developments last week, the Ministry of Finance on Friday announced plans by the federal government to tap the eurobonds market for a $950 million capital raise before April-end or in May.

Also, for the FGN bond auction this week, the DMO has scheduled an offer for April 2022 Primary Market Auction, indicating plans to offer FGN bonds worth N225 billion through re-opening of 10-year (N75 billion), re-opening of 20-year (N75 billion) and new 10-year (N75 billion) tenors. The bond auction is scheduled to be held on April 25, with a settlement on April 27.

Performance in the sub-Saharan Sovereign Eurobonds market was bearish as the average yield rose 12 basis points week on week to 11.6 percent. The Kenyan 2024 and Kenyan 2028 instruments led losers as yield rose 55 basis points and 44 basis points week on week, respectively. On the other hand, the South African 2022 instrument saw the most buying interest as yield fell 65 basis points week on week.

The African Corporate Eurobonds market closed the week on a positive note as the average yield declined 13 basis points week on week to 8.2 percent following buying interest in the Bayport 2022 instrument, with the yield declining 698 basis points week on week.