Yields Swing as Disinflation Lower Investors Negative Real Return
Trading activities in the fixed income market was mixed today amidst a sustained slowdown in the headline inflation rate. Thus, the market see yields adjustments which appeared to move both ways.
In the secondary market, the average yield on Treasury bills was steady as reductions in headline inflation reduce investors’ negative real return on fixed income securities. In the bonds space, yields cleared lower as demand increased.
Investors in the fixed income market portfolios returns have remained below the average inflation rate in the country. A low-interest rate environment and availability of funds in the fixed income space continue to impact spot rates on new issuance, rollovers.
As such, a reduced inflation rate would keep the return on investors portfolio in a better position as the gap between return and inflation reduce.
Meanwhile, the Central Bank conducted a primary market auction to roll over maturing bills, and analysts have predicted there will be a robust subscription level as seen in the past. Mosts analysts anchored solid demand at CBN auction on the level of funds seeking a better return in the financial markets.
At the press time, the CBN is yet to release the auction outcomes. But with robust funding in the space, analysts expectations remain that demand will remain strong- subscription levels at the previous auctions have been stronger.
In the money market, the interbank rate declined as the financial system liquidity position remains healthy. Data from the FMDQ Exchange shows that the Overnight lending rate decreased by 0.75 per cent to close at 13.50 per cent as against the last close of 14.25 per cent.
Also, the Open Repo (OPR) rate decreased by 0.75 per cent to close at 13.00 per cent compared to 13.75 per cent on the previous day.
Today in the treasury bills space, trading activities in the secondary market closed on a flat note with the average yield across the curve remaining unchanged at 4.48 per cent. Market participants appear to be busy with the CBN primary market auction.
FSDH Capital analysts note however shows that average yields across short-term, medium-term, and long-term maturities closed flat at 3.39 per cent, 3.98 per cent, and 5.31 per cent, respectively.
In the OMO bills market, the average yield across the curve decreased by 3 basis points to close at 5.45 per cent as against the last close of 5.48 per cent. Average yield across the short-term maturities declined by 3 basis points.
However, the average yields across medium-term and long-term maturities remained unchanged at 5.51 per cent and 5.54 per cent, respectively. OMO 8-Feb-22 (-38 bps) maturity bills witnessed buying interest, while yields on 13 days to maturity bills remained unchanged, FSDH analysts note showed.
In the secondary market, the Federal Government of Nigeria (FGN) bonds closed on a mildly negative note today, as the average bond yield across the curve cleared higher by one basis point to close at 8.11 per cent from 8.10 per cent on the previous day.
Average yields across medium tenor and long tenor of the curve increased by one basis point and six basis points, respectively.
However, the average yield across the short tenor of the curve remained unchanged. The 18-APR-2037 maturity bond was the worst performer with an increase in yield of 21 basis points, according to FSDH Capital analysts note.
Elsewhere, activities at the FGN Eurobond market traded on a bearish note, following selling pressures across the sovereign curve, according to Alpha Morgan Capital. Consequently, the average yield climbed by 8 basis points to close at 7.32%.
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