Investors Position for Higher Rate as FGN Plans to Raise Fund
Fixed income investors have continued to keep their eyes on the market dynamics amidst the government’s plan to raise more money from the local debt capital market in the second quarter of the financial year 2022.
The expected yield repricing has been slowed down by a robust liquidity position in the financial system, which has driven the oversubscription of government instruments in the primary market auctions. However, the liquidity position in the market has been strained, according to traders’ notes.
Market data indicates that the yield curve has adjusted upward in the second quarter of the year amidst the rising headline inflation rate and weak local currency. After a depressed performance, the Nigerian economic growth has been solid and the outlook appears even better.
Albeit, debt stock has expanded significantly due to fiscal slippage and rising subsidies payments as oil prices peaked. The equity market is booming but real return in the fixed income space remains negative. In the first quarter of 2022, Pension Funds Administrators pulled out from the Nigerian Treasury bills.
Last week, the yield curve closed mixed with bullish and bearish trading patterns spotted. Vetiva Capital analysts hint in a note that investors will keep a keen eye on macroeconomic data to assess the health of the economy as the second quarter of the year continues.
Meanwhile, analysts noted that a constrained liquidity profile for May, coupled with the Federal Government’s plan to increase borrowing next month and a rise in interest rates could spark increased activity in the market.
In the primary market auction last week, the Central Bank of Nigeria allotted Treasury bills worth N221 billion to refinance the N15.78 billion worth of matured treasury bills. READ: Treasury, Bond Yields Stable as Market Eyes Auction
Specifically, the 364-day bill was issued at a higher rate as investors’ bids were high. The CBN stop rate for 364-day Treasury bills increased to 4.79% from (4.00%) while the stop rate for 91-day bills and 182-day bills remain unchanged at 1.44% and 3% respectively
Following the increase in the 364-day bill rate, yields in the secondary market turned northwards for most of the maturities tracked. #Investors Position for Higher Rate as FGN Plans to Raise Fund