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Bond prices to sustain upward trend as N83bn inflow boosts interbank

Bond prices to sustain upward trend as N83bn inflow boosts interbank

By Babajide Komolafe

PRICES of FGN bonds at the Over-the-Counter market, are expected to rise further this week driven by surplus liquidity in the interbank money market to be sustained by N83 billion inflows from maturing treasury bills.

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Last week, the interbank money market experienced upsurge in liquidity due to inflow of N312 billion from matured treasury bills (TBs) as well as over N200 billion from statutory allocation funds. These inflows cancelled out the impact of outflow of N223 billion though the primary market TBs auction conducted by the Central Bank of Nigeria (CBN) last week.

The liquidity upsurge triggered increased demand for FGN bonds at the over-the-counter (OTC) segment, prompting rise in prices and fall in corresponding yields.

Data from FMDQ showed that the five-year, 14.50 per cent FGN JUL 2021 paper, gained N0.02, while the yield fell to 12.97 percent from 13 percent; the seven-year, 13.53 per cent FGN MAR 2025 bond also gained N0.14, while the yield dropped to 13.65 percent from 13.69 percent; and the 20-year, 16.25 per cent FGN APR 2037 gained N2.17 while the yield fell to 13.78 percent from 14.08 percent.

However, the 10-year, 16.29 per cent FGN MAR 2027 debt lost by N0.95 and its corresponding yield rose to 13.70 percent from 13.52 percent.

The upsurge in liquidity also triggered sharp decline in cost of funds with average short term interest rate falling by over 1600 basis points (bpts).

Data from FMDQ showed that interest rate for Collateralised (Open Buy Back, OBB) lending fell by 1622 bpts to 5.64 percent last week from 21.86 percent the previous week. Similarly, interest rate for Overnight lending dropped by 1,678 bpts to 6.43 percent from 23.21 percent the previous week.

Analysts projected that the inflow of N109 billion from maturing secondary market TBs will sustain interbank liquidity this week, and help maintain the upward trend in the prices of FGN Bond.

“In the new week, against the backdrop of boost in financial system liquidity, we expect FGN bond prices to rally (with corresponding drop in yields) amid expected bullish activity at the OTC market”, said analysts at Lagos based Cowry Asset Management Limited.

Naira depreciates further in I&E

The declining fortunes of the naira in the Investors and Exporters (I&E) window persisted for the third consecutive week, with 60 kobo depreciation last week.

Data from FMDQ showed that the indicative exchange rate for the window rose to N362.57 per dollar last week, from N361.97 per dollar the previous week, translating to 60 kobo depreciation for the naira.

The naira has been on the declining trend since second week of July, losing N1.78 to the dollar in the process.

The depreciation is driven by demand for dollars by foreign portfolio investors divesting their investment in treasury bills.

Meanwhile the CBN sustained its weekly intervention in the foreign exchange market last week. It injected $210 million into the interbank foreign exchange market, allocating $110 million to the wholesale segment, $55 million to the SME segment and $55 million to meet dollar demand for invisibles.

External reserves fall to $44.3bn in July

The nation’s external reserves recorded the first monthly decline in six months as it fell marginally by $743 million in July.

Data from the CBN showed that the reserves fell to $44.32 billion on July 30th from $45.07 billion on June 28, indicating decline of $743 million.

This represents the first monthly decline since February 28 when it commenced a steady rise from $41.29 billion, after falling persistently for seven months, from peak of $47.989 billion on July 5, 2018.

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