Yields are increasing across segments of the fixed income market as average yield in the FGN Bond market advanced to 11.82 percent on June 30, 2021 from 6.12 percent at the beginning of the year, according to FSDH Research.
This is a further increase from 9.82 percent at the end of first quarter (Q1) 2021. Rising yields are driven by the numerous liquidity management strategies of the CBN to stabilise the market which include, introduction of the Central Bank of Nigeria’s (CBN) Special Bill; week on week OMO auctions; direct debit on banks’ cash balance.
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The fixed income market continues to recover as the impact of the CBN’s Open Market Operation (OMO) regulation fades out.
FSDH macroeconomic report released on Wednesday showed that the expanded government’s debt programme for the year also influenced interest rates movement.
Year to date, the government has borrowed a total of N1.42 trillion, a substantial part of which could have gone into repayment of past debts.
Yields in the treasury bill space increased in the first half (H1) of 2021. Average yield in the NT-Bill market increased to 6.58 percent on June 30, 2021 from 0.46 percent at the beginning of the year.
This is a further increase from 4.13 percent at the end of 2021Q1.This is also a direct fallout from the liquidity management strategies of the CBN in the form of OMO Auctions, introduction of CBN Special Bill, intermittent debit on banks’ cash balance and government debt programs.
In the face of rising inflation and increasing appetite for debt, yields in the treasury bill market will continue to rise.
Year to date, the government has borrowed a total of N1.83 trillion from the NT-Bill market. In the OMO space, the report noted that Average OMO yields increased to 9.87 percent on June 30, 2021 from 0.58 percent at the beginning of the year.
This is also a further increase from 6.45 percent at the end of 2021Q1. Yields are expected to increase following the high inflation rate and government’s need to attract foreign investment inflows into the country.
The Nigerian Stock Exchange closed 2020 on an impressive note, despite fallout from COVID-19. This was partly as a result of lower yields in the fixed income market. The NGX-ASI closed the year with 50.03 percent gain while the NGX Market Cap expanded by 62.50 percent.
However, following the recovery of yields in the fixed income market, the equity market is witnessing a profit-taking sentiment.
Consequently, the equity market recorded a loss of 5.87 percent in 2021H1 while the Market Cap contracted by 6.18 percent. This amounts to a loss of N1.3 trillion in 2021H1. On a sector basis, the loss in the equity market has been driven by losses on the Industrial (8.09%) and banking (6.92%) indices despite 39.07 percent gain in the oil & gas index.
Beside the advancement of yields, the unimpressive financial statements across many listed companies, have contributed to the sell-off sentiment in the market.
At the foreign exchange market on Wednesday, Nigeria’s currency appreciated by 0.13 percent as the dollar was quoted at N411.22 as against the last close of N411.75 on Tuesday, data from the FMDQ indicated.
Currency traders who participated at the trading session on Wednesday maintained bids at between N400.00k and N412.50k per dollar.
At the Bureau De Change (BDC) and the parallel market, naira closed flat at N500 and N505 per dollar respectively.
