Fixed Income Market in H2-19: Caught between domestic and global policies

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In H1-19, performance at the secondary Fixed income market was largely bullish as the average yield on treasury bills and bonds which closed 2018 at 15.37% and 15.31%, moderated to 12.13% and 13.92% respectively, at the end of H1-19. Accordingly, the shape of the yield curve transited from being humped as at Dec-18 to normal as at the end of H1-19.

In H2-19, the performance of the fixed income market is anticipated to be a play of demand-side factors (global and domestic monetary policy actions) and supply-side factor (domestic financing needs). We expect that the tone of global central banks and the action of their monetary authorities will in a long way set the pace of the demand for EMs assets, in H2-19.

Fixed Income Market in H2-19: Caught between domestic and global policies - Brand Spur

Accordingly, our expectation for global monetary policy to remain dovish in H2-19 is a bull point for EMs assets. However, in Nigeria, we believe the lack of economic policy reforms will continue to scare the FPIs off equities while policy stability and a double-digit interest rate will promote a further appetite for fixed income instruments.

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Evidently, the dovish rhetoric from the global market is expected to create a more accommodative CBN in H2-19, especially as it aims to boost overall economic growth. Additionally, our outlook for oil, inflation and exchange rate in H2-19 supports a more accommodative monetary policy in H2-19. Yet, we expect the CBN to remain cautious in its
the easing process as it looks to maintain overall system stability by floating further OMO auctions at attractive rates compared to NTB in a bid to sustain the current FPI inflows.

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