AFRICA DEBT: Nigerian bonds seen attracting more demand next week

Nigerian bonds are likely to see more buying interest next week following interest rate cut by European Central Bank (ECB), which triggered demand for local debt by offshore investors.

Yields on Kenyan Treasury bills are expected to rise slightly next week, tracking higher rates on shorter date repurchase agreements by the central bank and rising inflation.

NIGERIA

Demand for Nigerian debt rose after the ECB cut its key interest rate to a record lows of 0.05 percent on Thursday and announced plans to buy asset-backed securities and covered bonds in October.

Traders said this bolstered interest in some of the local debt notes that had seen a sell-off this week.

“Some offshore investors who had taken profit from their holding initially at the start of the week sent in reverse orders on Friday,” one dealer said.

Yields on 2024 debt note have still climbed 76 basis points to 11.96 percent on Friday from 11.20 percent on Monday, though. The 2022 paper traded at 11.90 percent on Friday from 11.18 percent on Monday.

“We see a slight drop in yields on the two most actively traded bond next week on buying interest,” another dealer said.

KENYA

The central bank has said it plans to sell 91-day , 182-day and 364-day Treasury bills worth a total 12 billion shillings ($135 million).

At this week’s sale, the yield on the 91-day Treasury bills fell to 8.187 percent from 8.200 percent in the previous week, while that on the 182-day Treasury bills fell to 8.550 percent from 8.650 percent over the same period.

The yield on the 364-day paper eased to 10.233 percent from 10.253 percent last week.

The central bank has mopped up excess liquidity in the money markets using seven-day repurchase agreements (repos), including one worth 10 billion shillings on Friday, which had a weighted average rate of 8.324 percent from 8.356 percent on Thursday.

Analysts said the repos were putting pressure on the Treasury bills.

“This means that we expect the 364-day Tbill to remain unchanged and the 91-day and 182-day T-bills to readjust upwards to reflect the repo rate of 8.356 percent recorded yesterday,” Alexander Muiruri, fixed income analyst at Kestrel Capital.

Traders said there would also be upward pressure on yields stemming from rising inflation, which and went up to 8.36 percent in August from 7.67 percent in the previous month.

“Because of the inflation most guys are actually asking for higher returns. That’s the challenge. I see the same thing going to play in the T-bills,” said a fixed income trader at one commercial bank.

Traders said there was likely to be more demand for the 364-day paper, given that the central bank plans to sell 5 billion shillings’ worth of the bill, up from 4 billion shillings this week.

Reuters