A rise in short-term rates on Treasury bills caused bond holders and dealers to react unfavorably in the secondary market. Bond prices fell, though not dramatically, as the secondary market selloffs pushed the average yield to the other side of 18%. After spot rate changes, this rate level with OMO bills position and track along the Treaury bills curve.
The monetary authority’s recent change in the benchmark interest rate has changed the dynamics of the market, leading to double-digit high interbank rates and higher standing lending facility costs—the window through which local banks borrow money from the central bank.
Following several months of low bond market activity, the central bank of India auctioned 364-day Treasury bills at 21.45% in an effort to draw in international investors and increase foreign exchange liquidity. Foreign investors have been aloof due to negative interest yield and hope for US Fed rate cuts lingers.
Hence, trading activity for Federal Government of Nigeria (FGN) Bonds turned bearish in reaction to the inverted yield curve. There were mild sell-offs in the MAR 2036 FGN Bonds, MAR 2035 notes, and JUL 2034 maturities.
Investors’ decision to unload these government borrowing instruments led to a 66 basis points uptick in the average secondary market yield, settling at 18.01%, Cowry Asset Management Limited market update revealed.
In its market update, Cordros Capital Limited to investors via email that across the benchmark curve, the average yield increased at the short (+49bps), mid (+32bps) and long (+96bps) segments. Traders are projecting increase selloffs due to inverted yield while debt office frontload debts.
In February, bears extended dominance as market participants geared up for DMO’s historic ₦2.5 trillion auction and the hawkish outcome of the long-anticipated MPC meeting. At the auction, the debt management office (DMO) issued fresh 7 and 10-year sovereign papers to raise ₦2.5 trillion ahead of March’s ₦720.0 billion maturity.
However, demand fell short of offers on both tenors – 0.9x and 0.7x, respectively – as liquidity constrained investors pre-empted DMO’s reluctance to raise yield to a more fundamentally reflective level, Afrinvest said in a note.
In the end, the DMO was only able to allot a total of ₦1.5 trillion, with yield clearing at 18.5% (7-year) and 19.0% (10-year), respectively, as against a bid range of 18%–30% for both tenors. Afrinvest stated that the FG has so far raised 31.4% of its ₦6.1 trillion 2024 domestic borrowing target through bond sales.
