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Fixed-income market activity dips as investors stay off on low yields

Fixed-income market activity dips as investors stay off on low yields

Investors were apathetic to participate in Nigeria’s fixed income market but showed renewed interest at the equities end following a decline in real yields on the country’s short-term debts below zero.

The number of trades carried out at the treasury bills segment of the market dropped to 369 last week compared to 591 transactions executed in the preceding week, reflecting a reduced activity of market participants.

“The slowdown in terms of volume witnessed at the Nigerian T-Bills market shows investors are no longer playing aggressively in the market,” Akintunde Sulaiman, an investment analyst at Lagos-based Greenwich Trust Limited, told BusinessDay. “This comes as no surprise as the government looks to lower borrowing cost to bridge its finances going into the full year.”

Similarly, the bond market recorded a decline in market activity as 529 trades were recorded against 602 witnessed a week earlier, while the number of trades in the OMO market moderated to 1,213 from 2,119 recorded in the prior week after about one-quarter of the market players has been cut off.

But while investors showed reluctance in the fixed income space last week, transactions at the Nigerian Stock Exchange (NSE) bolstered as investors executed 21,849 trades. This is the largest number of weekly deals recorded at the local bourse since May 2019.

Consequently, the Nigerian stocks sustained their gains for the third straight week by 0.52 percent to close at 26,991.42 points.

Nigeria’s central bank recently rolled out some unorthodox policies which impacted the country’s financial market. Notable among the policies is the restriction of the local non-bank players from participating in the OMO market, a move preceding a collapse in the interest rates on NT-Bills to single digits for the time since 2016, and fuelling a hunt for lucrative opportunities outside the fixed income market.

Read also: Access Bank promotes financial inclusion among senior citizens with free banking

Although the average yield on benchmark bills in the Nigerian T-Bills secondary market fell by 2.84 percentage points on a week-on-week basis to settle at 8.38 percent last week, performance at the other segments of the market was bearish.

In the OMO market where big investors such as the pension fund managers and the insurance companies were barred, the average rate on benchmark bills trended higher by 0.04 percentage point to close at 12.68 percent. This is despite CBN’s efforts to provide liquidity support at the secondary end of the market.

A similar bearish sentiment was also witnessed at the local bond market, as the average yield on benchmark bonds increased by 0.02 percentage point during the week to 12.40 percent.

Meanwhile, the CBN is expected to conduct a primary market NT-Bills auction Wednesday, November 27 to rollover N150.60 billion of maturing bills, while a rollover auction worth N352.70 billion will be floated at the OMO market on Thursday, November 28.

“We anticipate the CBN will further depress rates in the auction albeit in a softer tide as a result of lingering liquidity with little investible securities for market players to place their funds,” according to Sulaiman.