SAN FRANCISCO, December 19, (THEWILL) – The sustaining grip of the tight monetary regime resonated across the segments of Nigeria’s financial market in the just concluded week. The Central Bank of Nigeria (CBN) has opted for tight policies option to tame the wave of runaway inflation and accompanying economic headwind. The tough measures which coincide with the Covid-19-induced recession and impact of the 15-month land border closure threatened the apex bank’s pursuit of single-rate inflation.
In the bid to discourage investment in fixed income market and push attention to funding the real sector, the CBN had decreed a sharp fall in investment yields in that segment of the market. Consequently, returns in Treasury Bill, Bond and similar fixed income instruments sustained their nosedive curves.
Treasury Bills
The CBN refinanced N7 billion worth of Treasury Bills via the primary market suffered lower rates for most maturities amid investors demand. Consequently, stop rates for 364-Day instruments fell sharply to 1.139 per cent from the last auction high of 3.20 per cent.
Similarly, stop rates for 182-day bill moderated to 0.50 per cent, from 0.60 per cent. Only one instrument – 91-day bill rose from 0.01 per cent to 0.048 per cent.
Activity at the secondary market went north as Nigeria Inter-Bank Treasury Bills’ True Yield Fixing (NITTY) contracted for most maturities tracked in tandem with declining stop rates. (The NITTY is the benchmark risk-free rate which is derived from the conversion of Nigerian Treasury Bills discount rates for benchmark tenors to money market yields, i.e., true yields.)
Data from FMDQ Securities Exchange showed that yields for 1 month, 3 months, 6 months and 12 months maturities fell to 0.24 per cent (from 0.31 per cent), 0.25 per cent (from 0.40 per), 0.39 per cent (from 0.48 per cent) and 0.75 per cent (from 0.79 per cent).
In the new week, Treasury Bills worth N250.50 billion will mature via OMO. Analysts at Cowry Assets Management expect interbank rates to further decline amid anticipated boost in financial system liquidity.
Bond Market
In the Bond Market, the Debt Management Office (DMO) offered N60 billion worth of bonds at higher rates, apparently to curb investor apathy that characterized the fixed income market amid crash in yields. Specifically, the 15-year and 25-year re-opening worth of N30 billion and N30 billion was issued at 6.945 per cent (from 5.00 per cent) and 7.00 per cent (from 5.79 per cent) respectively.
Also, the values of FGN bonds traded at the secondary market moderated further in tandem with the stop rates. Notably, the 5-year, 14.50 per cent FGN JUL 2021 bond, the 10-year, 16.29 per cent FGN MAR 2027 debt and the 20-year, 16.25 per cent FGN MAR 2037 note lost N0.20, N4.03 and N31.94 respectively; their corresponding yields rose to 0.52 per cent (from 0.51 per cent), 4.86 per cent (from 3.28 per cent) and 7.20 per cent (from 5.34 per cent) respectively.
However, the 7-year, 13.53 per cent FGN APR 2025 paper appreciated by N0.01; its corresponding yield fell to 5.34 per cent (from 6.31 per cent). Meanwhile, the value of FGN Eurobonds traded at the international capital market rose for most maturities tracked on sustained bullish activity.
The 20-year, 7.69 per cent FEB 23, 2038 paper and the 30-year, 7.62 per cent NOV 28, 2047 debt further gained USD0.01 and USD0.05 respectively, while their corresponding yields fell to 7.05 per cent (from 7.06 per cent) and 7.17 per cent (from 7.18 per cent) respectively.
The 10-year, 6.75 per cent JAN 28, 2021 bond lost USD0.11, its yield rose to 3.89 per cent (from 3.50 per cent).
Analysts expect local OTC bond prices to appreciate (and yields to moderate) amid expected boost in financial system liquidity. Similarly, investors are expected to further patronize the Eurobond market amid relatively higher local bond yields.
Equity Market
Investors’ increasing preference for the equity market as against the yield-draught fixed income window has led to continued bullish regime of the Nigerian bourse.
Market sentiment was positive throughout the week as investors took position in blue-chip stocks and dividend-paying stocks with corporate action season approaching fast. Against the backdrop of the 365-day T-bills contracting to 1.14% at the primary auction market, the equities market index rose as much as 2.10 per cent on Thursday, December 17, 2020. Consequently, the NSE All share Index jumped by 7.46 per cent week-on-week to close at 36,804.75 points. Similarly, gains were broad-based as all the sub-indices tracked closed northwards.
Foremost market research organisation, Futureview Group, said year-end activities would shape events in the financial market.
“We expect investor sentiments to be driven by portfolio positioning as the year comes to an end and the quest for positive investment returns”, the Group said in its weekly report of December 18.
A stockbroker, Paul Uzum, described the bullish trend in the equity market as unsustainable. He told THEWILL in an exclusive chat that the growth is not based on any fundamentals, hence it will burst soon.
“Money market is terrible right now with very low yields; Treasury Bills not going for less than 0.2 per cent. So, people do not have anywhere else to put their money other than stock. It is already a bubble. It will eventually burst. When rates start moving up, the trend will change,” Uzum said in a mail chat.
