Bond Yields Soar as Investors Await MPC Decision

Ahead of the Monetary Policy Committee, MPC, meeting today,Monday, May 23, sovereign bond yields have continued to rise as investors expect a possible upward re-pricing of the benchmark monetary policy rate, MPR, as inflation also soars.

The headline inflation rate for April 2016 announced last week, jumped to a record 13.7 per cent, the highest level since August 2010, in line with analysts’ prediction.

Headline inflation has spiked by 2.8 per cent since February after a gradual but consistent climb in the consumer price index (CPI) since 2015.

The MPC had guided the market on the need to maintain a positive interest rate in its March, 2016 meeting when it increased MPR to 12 per cent from 11 per cent in order to give a spread on inflation rate which was at 11.4 per cent in February.

According to a report by Afrinvest West Africa Limited, the expectation of MPR at possibly 14 per cent or 15 per cent has dictated bond yields dynamics in the last two weeks.

Average bond yields in the week settled at 13.4 per cent with a steady rise in all trading days of the week.

“We noticed increased buying appetite for longer dated bonds with term to maturity of three years and above as bond yields (excluding Aug 2016, April 2017 and Jul 2017) currently converge around 14 per cent.

“The bearish mood in the market led to further dip in prices as most instruments are currently trading at discount, presenting a cautious opportunity in the horizon, post the next MPC meeting.

Consequently, the sovereign bond yield curve shifted upward week-on-week with the normality of the curve noticed at the short end of the curve while the medium to long term end shows a near flatness with the yields converging at 14.2 per cent,” the report added.

However, analysts stated that the major determinant of yields movement will be premised on the decision of the MPC about MPR.




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