Investors Maintain Appetite for Short-dated Instruments

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Kekenapep –

Investors Maintain Appetite for Short-dated Instruments

By Obinna Chima

The bond market recorded moderate activities in both the primary and secondary markets last week as investors continued to show preference for short-dated instruments.

Nonetheless, the yields on treasury bonds pared moderately by four basis points last week to settle at 15.3 per cent.

This, was due to increased buy interest on the final trading day of the week, before which yields had increased moderately by one basis points, analysts at Afrinvest Securities stated in their latest report.

They noted that the yield differential between Treasury bills would likely result in a persistence of the trend witnessed over second half 2018 to date. “Although we expect yields on FGN bonds to trend upwards over the short-term. In the Sub-Saharan Eurobond market, demand levels were sustained into this week, as the average yield declined by 36 basis points to settle at 7.8 per cent.

“There were yield declines witnessed across all bonds, save for the Mozambique Eurobond, which recorded an eight basis points increase to settle at 14.1 per cent.

“On the flip side, the largest declines in yields were recorded on the Ghana and Kenya Eurobonds, which recorded average declines in Ask-yields of 45 basis points and 40 basis points respectively, to settle at 7.8 per cent and 7.7 per cent,” it added.

Similarly, the report showed that average yield on Nigeria’s Eurobonds pared in the week’s trading by 47 basis points to settle at 7.5 per cent.

“The resurgence in interest in assets is in line with our expectations and trend in election years. We expect continued interest in US Dollar assets through to H2:2019 as investors remain wary of risk factors on the horizon that could potentially affect the value of the naira,” the report added.

In addition, it noted that the trend in the corporate Eurobonds space closely mirrored that of Sub-saharan Eurobonds, as the average yield pared by 20 basis points to settle at 7.6 per cent. There were also yield declines across all bonds save for the Diamond Bank 2019 bond, which recorded a yield increase of 162 basis points to settle at 13.1 per cent.

This was expected as investors were anticipated to take profit on the instrument given the decline in the yield of the bond following the announcement of the bank’s merger with Access Bank Plc. Also, there was significant demand for the FBNH 2021 Eurobond during the week, as the Ask-yield on the bond declined by 1.5 per cent to settle at 6.3 per cent.

“Similar to our expectations for Nigeria Sovereign Eurobonds, we project the yields on these bonds to pare over the short-term given factors stated.”

Interbank Naira Market

Activities in the money market last week were somewhat muted as system liquidity remained in the negative region.

This followed the aggressive pace of open market auctions (OMO) by the Central Bank of Nigeria (CBN) last Tuesday and Thursday in its bid to prevent speculative sentiments in the market ahead of the upcoming presidential elections.

Tuesday’s auction saw the CBN offer OMO bills worth N60 billion, although it was largely undersubscribed, at N10.7 billion despite attractive rates on the offer: 107-day (11.9%), 170-day (13.5%) and 317-day (15.0%). Furthermore, maturity expectations on OMO instruments worth N375.4 billion saw the issuance of another OMO tranche on Thursday in an offer worth N400 billion, which was also largely undersubscribed.

Only the 364-day OMO bill was 1.13x subscribed while the 91-day (11.9%) and the 189-day (13.5%) were both undersubscribed by 0.12x and 0.02x.
Direction of rates in the secondary market saw money market rates – OBB (Open Buy Back) and OVN (Overnight) – rise further from 20 per cent and 23.8 per cent at close of the preceding  week to 22.7 per cent and 24.7 per cent last week.

Notably, rates surged to 26.67 per cent (OBB) and 27.67 per cent (OVN) on Wednesday, following Tuesday’s surprise OMO auction as system liquidity worsened to the negative region. In the secondary T-bills market, bullish sentiment, especially for long tenor instruments, saw average yields decline 56 basis points to 13.52 per cent on Friday from 14.1 the preceding week.
This week, central bank is scheduled to repay N429.6 billion maturing treasury bills with the same sum rolled over.

“We expect rates at the auction to remain at attractive levels in line with recent trend while we anticipate a near muted activity in the secondary market.

“Also, in line with its tight system liquidity posture, we expect conduct of OMO auctions by the CBN next week to offset maturities worth N560.9 billion.”



Forex Market

In its first intervention in 2019, the CBN injected a total of US$210 across various market segments – US$100.0m in the Wholesale and US$55.0m each in the SME and Invisibles (tuition fees, medical payments and BTA) segments. 
Also, the CBN injected the sum of $263 million into the Retail Secondary Market Intervention Sales (SMIS), being its first intervention in that segment of the the market this year.

This was in addition to the sum CNY 39 million consummated through a combination of spot and short-tenored forwards, arising from bids received from authorised dealers.  

The figures obtained from the CBN revealed that the US dollar-denominated interventions were for requests in the agricultural and raw materials sectors while the Yuan sale was for payment of Renminbi-denominated Letters of Credit for agriculture as well as raw materials.


In the parallel market, naira closed the week flat at N362/$1 due to CBN’s forex injection on Monday to boost sales in the wholesale segment of the market. Similarly, the CBN’s spot rate appreciated by five kobo from N306.95/$1 to close at N306.90/$1; while in the Investors’ & Exporters’ (I&E) FX Window, the naira opened the week at N365.30/$1 but appreciated 18 kobo to close the week at N365.12/$1.


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