Analysts see marginal increase in bond yields this week

ANALYSTS AT FBN QUEST ARE projecting a marginal increase in the yields of bonds despite being currently high.

Trading in the bond market closed last week bearish, owing to the higher than expected stop rates at the NTB primary auction as well weak demand from foreign investors, stemming from general risk-off sentiments around emerging-market assets.

Consequently, average yield rose by 25 basis points week on week to 14.81 percent.

Yields expanded across the short (+24 bps), mid (+33 bps), and long (+15 bps) end of the curve following selloffs of the FEB-2020 (+61 bps), MAR-2024 (+39 bps), and JUL-2034 (+21 bps) bonds, respectively, recording significant expansions.

Notably, yields on mid to long-tenured bonds crossed the 15.00 percent mark for the first time since end October 2017.

According to FBN Quest, the latest monthly auction of federal government bonds in August showed marginal rates were higher than in July for all three instruments hence the reason for a higher yield projection.

At the last auction the debt management office’s (DMO) N90 billion offering, attracted a total bid of N101 billion and raised N40 bil- lion from sales. The auctions since April have seen a trend decline in the total bid and a steady pick-up in rates.

FBN Quest said yield has regulated but will have a slightly upward bias in the coming week, they said, “our call is that federal government bond yields have settled on a plateau, with a slight upward bias, for the week ahead. We see evidence of fatigue on the part of domestic institutions and sense that the offshore com- munity is guided by the normalization of US monetary policy.”

The research division of First Bank Nigeria Plc, also stated that the debt management office has been given breathing space by the 2018 budget funding target, which has been cut from N1.25 trillion in 2017 to N790 billion.

“The DMO has some breathing space because its domestic funding target in the 2018 budget has been cut to N790bn from N1.25 trillion the previous year.

Budget and calendar years overlap of course through no fault of the DMO. It raised N1.45 trillion from its monthly auctions in 2017 and has achieved a further N530 billion year to date,” they said.

Looking forward to the week ahead, Cordros research analysts equally expect yields to follow the primary auction stop rate and in the medium term, a high but modest yield.