Prices of FGN bonds traded in the secondary market are expected to rise further this week due to anticipated increased demand fueled by inflow of N419 billion into the interbank money market.
Bonds prices have been on the upward trend in recent times, with yields declining, following near zero interest rates on treasury bills, which makes FGN bonds the only viable fixed income investment option for investors. The trend persisted last week, with average yield falling by 12 basis points (bpts).
Explaining the factors driving the bullish trend, analysts at Cordros Securities Limited, said: “We attribute the bullish performance to: Central Bank of Nigeria (CBN)s dovish stance at the Monetary Policy Committee (MPC) meeting this week (last week); and the further decline in stop rates at the Nigeria Treasury Bill auction.”
Though the prices of most bonds moved in different directions, average yield for short, medium, long tenure FGN bonds fell respectively by 22bpts, 7bps, 10bps. Specifically, the 7-year, 13.53% FGN MAR 2025 bond and the 10-year, 16.29% FGN MAR 2027 bond gained N2.65 and N1.08 respectively while their corresponding yields fell to 1.70% (from 2.24%) and 3.61% (from 3.77%) respectively.
However, the 5-year, 14.50% FGN JUL 2021 bond and the 20-year, 16.25% FGN APR 2037 bond depreciated by N0.22 and N0.54 respectively while their corresponding yields rose to 0.25% (from 0.23%) and 5.02% (from 5.00%) respectively.
Analysts across the spectrum however projected general rise in bonds prices this week, citing inflow of N419 billion from maturing secondary market (Open Market Operations, OMO) treasury bills, which is expected to generate further demand for bonds. Analysts at Cowry Assets Management Limited said: “In the new week, we expect local OTC bond prices to appreciate (and yields to moderate) amid expected boost in financial system liquidity.
” Similarly, analysts at Cordros Securities, said: “Considering the low level of yields at the Treasury bills market, we still expect investors to meet their fixed income investing needs in the Treasury bonds secondary market.”
Meanwhile, the expected liquidity boost is expected to sustain the decline in cost of funds in the interbank money market last week. Last week, the inflow of N123 billion from matured OMO treasury bills caused interest rate on Overnight lending fall by 283bpts to 1.5 percent on Friday from 4.33 percent the previous week.
Similarly, interest rate on Collateralised (Open Buy Back, OBB) lending dropped by 208 bpts to 1.25 percent on Friday from 3.33 percent the previous week. Projecting that this trend will persist this week, analysts at Cowry Assets
Management Limited, said: “In the new week, treasury bills worth N418.92 billion will mature via OMO; hence, we expect interbank rates to further moderate amid anticipated boost in financial system liquidity.” Analysts at Cordros Securities similarly stated: “In the coming week, inflows from OMO maturities of NGN418.92 billion are expected to hit the system. Barring any significant mop-ups by the CBN, we expect the OVN to remain depressed.”