Bond yield to decline further on increased liquidity
by Hope Moses-Ashike
November 30, 2015 | 10:15 am| | | Start Conversation
Bond yields are expected to decline further this week following increased liquidity in the financial system, analysts in the securities and asset management segment of the financial market have said.
Average yields on Friday closed at 9.4 percent, resulting in average bond yields decline of 2.1 percent Week-on-Week. A report by Afrinvest Securities Limited revealed that the performance of the Nigerian bond market was generally bullish on most trading days last week.
To start off the week, the bond market recorded a broad rise in yield across all instruments on Monday, as average yields settled at 10.5 percent, up 1.1 percent from the 11.5 percent recorded in Friday, the previous week. This was consequent on investors’ expectations for a reduction in monetary policy rate MPR after the Monetary Policy a Committee MPC meeting concluded on Tuesday.
However, on Tuesday, activity in the bond market was generally mixed as short- to medium-term investors sold down on their positions while longer tenured instruments (NOV 2028 to JUL 2034) appreciated 8bps on the average.
Following the decision of the MPC to free up liquidity, the reactions of investors within the bond market saw a remarkable reduction in average bond yields to 8.8 percent from 10.6 percent recorded in the previous day as prices crashed on MPC’s decision to cut interest rate. However, yields increased on all instruments on Thursday except the AUG 2016 instrument, which recorded a reduction to 2.8 percent from 3.0 percent observed in the previous day.
At the foreign exchange (FX) market, the sustained dollar supply shortage and continued pressure on naira, particularly at the parallel market, are expected to be sustained this week, according to analysts at Cowry Asset Management Limited.
The dollar supply deficits occasioned by reduction in weekly sales by the apex bank and current regulatory authentication mechanisms have further put pressure on the naira relative to the dollar. The naira lost 3.67 percent to the greenback to close at N240/$ from N231.5/$ in the preceding week, at the parallel market segment. Similarly, the naira lost 3.86 percent of its value relative to the dollar at Bureau De Change where it traded at N242/$ from N230/$ in the previous week.
However, CBN clearing rate and interbank rate closed steady at N197/$ and N199.10/$, respectively. Meanwhile, most forward contracts at the OTC market indicate relative stability of the naira with respect to the dollar.
The 1 month, 3 month, 6 month and 12 month forwards were put at N201.22 (from N201.21/$ in the preceding week), N207.94/$ (from N207.92/$), N215.73/$ (from N215.75/$) and N226.49/$ (from N226.46/$), respectively.
However, the spot rate declined by 0.47 percent to N197/$ (from N197.94/$).
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