Published On: Tue, Sep 11th, 2018

Nigerian Bond yields remain stable despite cherry-picking

The Nigerian bond yields were flat on Tuesday, despite some cherry-picking for higher yields on the 2021s and 2036s.

The Bond market remained largely order driven, with continued client interests seen around the mid tenured bonds (26s -28s) as clients maintained a floor of coupon rate of 15.10 per cent on their bids.

And due to the recent uncertainty and risk off stance within the Treasury Bills segment of the fixed income market, local investors have concentrated on bonds.

Analysts from Zedcrest Capitals expect that these sentiments to keep bond yields in check in the near term, but, however, reiterated that the bearish outlook ahead of the next Federal Government Bond Auction of 26th September, where and expect renewed supply of bonds to drive yields higher.

Meanwhile, the T-bills market remained significantly bearish in Tuesday’s trading session as yields trended higher by 30 basis points to coupon rate of coupon rate 13.01 per cent on average. This was underpinned on further OMO auction by the Central Bank Nigeria (CBN), where it elongated its offering into a 324 -day tenor, the longest since last year August 25th.

Market players responded by selling off the short tenured bills as high as 13.50 per cent on some maturities, as they became increasingly risk off, taking the move as a sign of desperation on the part of the CBN.

Subscriptions at the OMO auction remained weak, with market players relatively uninterested in the shorter tenured offerings, whilst bidding as high as 14.50 per cent for the 324-day Tenor.

The CBN eventually sold a total of N300m of the 198-day and 81.65bn of the 324-day at 12.50 per cent and 13.20 per cent respectively. The DMO is expected to offer a total of N136bn T-bills to rollover existing maturities. We expect rates to clear at c.30bps above their previous levels.

Meanwhile Open Buy Back (OBB) and Overnight rates inched higher in today’s session, closing at 6.33 per cent and 7.25 per cent respectively. This came on the back of outflows from a further OMO auction (c.N82 billion) by the CBN. The Net system liquidity is consequently estimated to close the day at c.N350bn from c.N430bn estimated opening levels.

Zedcrest analysts project that continued CBN interventions would pressure rates higher towards weekend.

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