Sell-off Persists in Bond Market


By Obinna Chima

Bearish sentiments dominated the bonds market last week as average yield across benchmark bonds rose on most trading days of the week.

Average yield across benchmark bonds closed the first trading day of the week at 13.7 per cent, up 1.2 per cent from last Friday as sell sentiment lingered. The selloffs continued on Tuesday as yield rose 0.2 per cent to close at 13.9 per cent.

According to a report by Afrinvest West Africa Limited, the sell offs continued towards the end of the week with increased activity observed on the FGN MAR2024, FGN JUL2034 and FGN MAR2036 bonds, as average yield settled at 14 per cent by the end of Thursday’s trading session, eventually ending the week up 1.5 per cent week-on-week.

The Debt Management Office is scheduled to auction N105 billion worth of bonds at the monthly bonds primary market auction. The amount on offer is N15billion of FEB2020, N40bn of JAN2026 and N50bn of MAR2036 bonds.

“We expect these bonds to clear at stop rates of 13.7%, 13.9% and 14.0% respectively. We believe the bonds market performance in the week ahead will be majorly driven by the auction as investors free up liquidity ahead of the auction even as unsuccessful bids are redirected into the secondary market,” the report by Afrinvest stated.

Meanwhile, the financial system liquidity opened last Tuesday higher at N463.2 billion relative to N277.4 billion closing balance recorded the preceding week.

Thus, money market rates, the open buy back (OBB) and overnight settled at 3.1 per cent and 3.4 per cent respectively prompting an open market operation auction of N50 billion by the Central Bank of Nigeria.

Consequently, system liquidity moderated to N412.5 billion on Wednesday but did not materially impact on rates as the OBB rates dropped to 2.8 per cent, while overnight steadied at 3.4 per cent. Last Thursday, system liquidity received a boost as it further inched higher to N439.4 billion while open buy back and overnight rates moderated to 2.7 per cent and 3.3 per cent in that order. As at Friday, open buy back and overnight rates closed two per cent and 2.3 per cent lower week-on-week to settle at 2.8 per cent and 3.2 per cent as the system liquidity had improved 51.4 per cent to close the week at N408.3 billion.

At the treasury bills market, investors continue to show interest in the short dated treasury bills instruments as against the 364 Day instruments that traded at yields in excess of 11 per cent throughout the week. Average treasury bills yield opened higher last Tuesday at 10.1 per cent in response to system liquidity dynamics but moderated at 9.3 per cent last Wednesday and Thursday.