Benchmark one year treasury yields have been rising in recent times, from about 12 percent earlier in the year to almost 17 percent this week.
The surge accounts for the growing divergence between bond yields and dividend yields of listed equities.
The average dividend yields of NSE 30 (the largest and most liquid firms on the exchange) is 6.60 percent, according to Bloomberg data.
“Investors expect volatility ahead and they rather hold onto fixed income that doesn’t change than hold on to stocks. I think everybody is holding back because of the election and that’s the selling we have seen so far this year,” said Wale Okunrinboye, head of research at Sigma Pensions.
“Turnover is bad this year. We tend to see supply and nobody is buying, but people are buying treasury bills. The central bank is trying to make Naira yields attractive through its OMO operations. One year Treasury bills is between 16.80 percent, 16.90 percent, which is higher than the 10 year treasury bills of 15 percent. That is an inversion of the yield curve,” Okunrinboye said.
READ ALSO: A Fixed income guide for Nigeria in 2019
Equities closed the second trading session of the week lower yesterday, losing 1.14 percent.
Market capitalization shed N133.12 billion to N11.38 trillion while year to Date (YTD) returns sank to -18.49 percent.
Market breadth closed negative, recording 14 gainers and 23 losers.
Investors are bullish on fixed income assets as they fret over the uncertainties surrounding the forthcoming elections.
They see more stock volatility on the back of the trade spat between China and the United Sates (U.S), contagion due to geopolitical risk in Brazil, Turkey, Argentina, and South Africa, and the continuous hike in interest rates by the U.S Feds.
Nigeria 10 year yields decreased 0 percent or 0.00% to 15.66 on Tuesday November 27 from 15.67 in the previous trading session.
Historically, the Nigeria Government Bond 10 year reached an all-time high of 17.31 in February of 2015 and a record low of 5.92 in March of 2010.
Kayode Tinuoye, Fund Manager at United Capital Asset Management Ltd said that bond yields are more volatile because it depends on foreign direct investment, inflation and interest rates and that bond yields have always been higher than dividend yields.
“Bond yields were at a single digit around 2011 and even at that dividend yields were lower,” said Tinuoye.
BALA AUGIE
