Bonds investors will see a further moderation in yields this week on the expectation of robust liquidity in the financial system, analysts projected.
The projection is anchored on the expectation of an improved inflow into the financial system during the week.
At least N281.77 billion will flow into the financial system from maturing Treasury and Open Market Operations (OMO) bills this week. This is expected to keep adjustment in interbank rates, and by extension yields in check.
Market data shows that average yields on fixed-income market instruments have been on the decline due to limited issuance and four consecutive month inflation drop.
Nigeria has raised a significant amount via Treasury bills and another instrument in the first half, resulting in a steep yield repricing. Now, yields have been on the downward, helped by liquidity boost as subscription levels at bonds and treasury auctions remain robust.
In the just concluded week, the Federal Government bond spot rates dropped amidst sustained bullish sentiment, following a deliberate effort put into play by the DMO seeking to reduce debt service.
DMO sold N260.09 billion more than its offer of N150.00 billion at the weekly bond auction with stop rates for the 13.98% FGN FEB 2028, 12.40% FGN MAR 2036 and 12.98% FGN MAR 2050 securities allocated at 11.60%, 12.75% and 12.80% respectively.
This was lower than 12.35%, 13.15% and 13.25% respectively at the previous auction, which analysts at Cowry Asset said was in line with their expectations. At the secondary market, the 5-year 13.53% FGN APR 2025, the 10-year 16.29% FGN MAR 2027 bond and 20- year 16.25% FGN MAR 2037 paper gained N0.52, N3.38 and N0.64 respectively.
The instruments corresponding yields fell to 10.72% (from 11.90%), 11.45% (from 12.22%) and 12.67% (from 12.75%) respectively. However, analysts said the 10-year 13.98% FGN MAR 2028 bond lost N3.45 and its corresponding yield rose to 11.55% (from 11.99%).
In a related development, the value of Federal Government of Nigeria Eurobonds traded at the international capital market moderated for all maturities tracked. The 10-year, 6.375% JUL 12, 2023, the 20-year, 7.69% FEB 23, 2038 paper and the 30-year, 7.62% NOV 28, 2047 debt lost US$0.28, US$1.32 and US$1.22 respectively, Cowry Asset said.
FGN Eurobond corresponding yields rose to 3.09% (2.98%), 7.75% (from 7.60%) and 7.84% (from 7.73%) respectively. Meanwhile, analysts expect yields to further moderate as local over-the-counter bond prices increase on the back of bargain hunting activities amid an expected boost in financial system liquidity.
In the outgone week, open market operations (OMO) bills worth N91 billion matured, thus boosting financial system liquidity. Cowry Asset analysts said the inflows partly led to depression in Nigeria Interbank Offered Rates for most tenor buckets.
Specifically, Nigerian Interbank Offer Rate (NIBOR) 1 month, 3 months and 6 months rose week-on-week to 9.13% (from 11.69%), 10.48% (from 12.60%), and 11.05% (from 14.59%) respectively.
However, NIBOR for overnight funds increased to 22.50% (from 16.00%), suggestive of some level of tightness, as Standing Lending Facility spiked 290.7% to N204.83 billion to partly offset outflows worth N260.09 billion in FGN bond purchases.
Elsewhere, Nigeria Interbank Treasury Bills True Yields (NITTY) moved in mixed directions. NITTY for 1 month and 12 months moderated week on week to 2.49% and 7.52% respectively from 2.52% and 7.77% respectively.
However, NITTY for 2 months and 6 months increased week on week to 3.36% and 4.46% respectively from 3.28% and 4.17% respectively. “In the new week, T-Bills worth N124.50 billion and OMO bills worth N157.27 billion will mature. We expect interbank rates to moderate amid anticipated boost in financial system liquidity”, analysts projected.