Bond yields fall on rate decision
THERE were indications that Nigeria would raise N129.17 billion ($649.10 million) worth of local currency denominated Treasury Bills (T-Bills), with varying maturities of three months and one year on December 2.
The debt instrument, according to Central Bank of Nigeria, will be made up of N17.85 billion for the three-month paper; N18 billion in the six-month paper; and N93.32 billion in the one year bill, through the Dutch Auction System.
Meanwhile, yields on Nigeria’s bonds fell below 10 per cent across maturities on Wednesday’s trading session, a day after the apex bank announced a surprise interest rate cut aimed at stimulating lending.
Traders said they are expecting lower returns on the short-date paper at the auction next week in tandem with the prevailing trend in the secondary market. The naira and bond yields fell sharply on Wednesday while stocks rose.
CBN had cut benchmark interest rate to 11 per cent from 13 per cent, its first reduction in the cost of borrowing in more than six years, amid hard hit condition by a plunge in crude prices.
“On the back of the reduction in policy rates … investors are reconsidering investment in the equities market to earn higher return. We anticipate further moderation in bond yields,” the Head of Research at Afrinvest Securities Limited, Ayodeji Ebo, said.
Yield on the most liquid five-year bond fell 264 basis points to a five-year low of seven per cent, while the benchmark 20-year bond closed 150 basis points down at 10.8 per cent.
The apex bank, since the liquidity tightening on the aftermath of Treasury Single Account implementation, has been injecting cash into the banking system in a bid to help the economy.
Banking system credit stood at N290 billion as of Wednesday, keeping overnight rates as low as 0.5 per cent.
The Head of Africa Strategy at Standard Chartered Bank, Samir Gadio, said bond holders could be exposed to future losses if the interest rate easing cycle suddenly ends with inflation currently trading 9.3 per cent below the yields.
“Our economists still believe a devaluation will happen in a couple of quarters, but I think they have had opportunities,” the Head of CEEMEA Debt and FX Strategy at Citi, Luis Costa, said.
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