Bond prices to rise further as N253bn inflow boosts interbank liquidity

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THE two weeks upward trend in bond prices is expected to persist this week even as inflow of N253 billion boosts liquidity in the interbank money market.

Faced with scarcity of attractive investment outlets to reinvest funds from maturing bonds and treasury bills, local investors besieged the bond market last week, prompting a bullish trend which drove up prices for the second consecutive weeks.

Consequently, the five-year, 14.50 per cent FGN JUL 2021 paper, gained N0.04 while the yield fell to 5.99 percent from 6.06 percent; the seven-year, 13.53 per cent FGN MAR 2025 note gained N4.46 while the yield dropped to 10.61 percent from 11.75 percent; the 10-year, 16.29 per cent FGN MAR 2027 debt gained N2.16 while the yield dropped to 12.18 percent from 12.61 percent; the 20-year, 16.25% FGN APR 2037 bond gained N3.44 while the yield dropped to 12.30 percent from 12.71 percent.

This trend according to analysts at Cowry Assets Management Limited will persist this week, buoyed by expected inflow of N253 billion into the interbank money market. “In the new week, we expect OTC bond prices to appreciate (and yields to moderate) against the backdrop of expected boost in financial system.”

Analysts at Cordros Capital also projected: “We expect the Treasury bond secondary market to remain bullish in the coming week, as investors continue to seek to re-invest maturities.” On their part, analysts at Zedcrest Capital stated: “We maintain our expectation for this locally-driven demand to persist in the near-term.

In the wake of moves by the Federal Government to cut its budgetary spending and increasing borrowing as a result of the COVID-19 pandemic, we expect the Debt Management Office, DMO, to revise its borrowing calendar for the quarter should the FG’s plans get the necessary approvals in place and thus adopt a more cautious approach mid-term.”

Cost of funds to fall Meanwhile, the N253 billion inflow is also expected to prompt a downward movement in cost of funds in the interbank money market, in contrast to the spike recorded last week

The spike which saw average short term cost of funds rising by 1,350 basis points, was occasioned by outflow of funds as the Central Bank of Nigeria, CBN, debited banks for foreign exchange purchase and for penalties relating to Loan-to Deposit Ratio, LDR, defaults. Consequently, interest rate on Collateralised, Open Buy Back, OBB, lending rose by 1,280 bpts to 15 percent last week from 2.2 percent the previous week. Similarly, interest rate on Overnight lending rose by 1,430 bpts to 18.83 percent last week from 2.6 percent this week.

Analysts at Cowry Assets, however, expect this trend to be reversed this week due to the inflow of N253 billion from maturing treasury bills.

“In the new week, T-bills worth N253.44 billion will mature via the primary and secondary markets which will more than offset T-bills worth N58.49 billion to be auctioned by CBN via the primary market; viz: 91-day bills worth N5.85 billion, 182-day bills worth N3.50 billion and 364-day bills worth N49.14 billion.

Hence, we expect the stop rates to decline marginally amid financial liquidity ease,” they said. “ Analysts at Cordros Capital also said: “We expect the Overnight rate to contract in the coming week, as inflows from OMO maturities come into the system.”

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