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Banking & Finance

Sell-offs Push Bond Market Bearish

debt management office; bond market
Posted: Sep 14, 2016 at 1:13 pm   /   by   /   comments (0)

By Bamidele Ogunwusi.


Rising inflationary pressures and expectations continue to determine sovereign yields movement as rates remain attractive at an average of 16.2 per cent at the close of the week.

Sentiments in the bonds market was broadly bearish last week as sell-offs were recorded across term structure. Average yields across sovereign benchmark instruments rose on all trading days of the week save for Monday when it declined 10 basis points to close at 14.9 per cent.

Consequently, average benchmark yield rose four basis points week-on-week to 15 per cent. Investors continue to show preference for shorter term bond instruments on the back of attractive yields.

The Debt Management Office (DMO) will this week be re-opening the July 2021, January 2026 and March  2036 bond instruments with offer amount ranging between N35 billion to N45 billion on each instrument.

“As inflationary pressures mount, investors remain highly cautious with bond investing while taking positions in mostly liquid bonds with shorter term to maturity and lower modified duration.

“Whilst our inflation outlook remains high with yield environment expected to stay elevated, we advise investors to position in sovereign bond instruments with lower modified duration given their tapered sensitivity to changes in yield environment. In the week ahead, we expect activities in the local bonds market to remain soft,” Afrinvest added.

In the futures market, despite the August 16 2017 Futures contract trading at N241.00/US$1.00, the 1-Year forwards rate hovered between N352.00/US$1.00 and N354.70/US$1.00 during the week (save for Tuesday when it appreciated to N314.00/US$1.00), implying a weaker expectation for future price of the naira.

“In the week ahead, we expect activity level at the interbank to stay soft on the back of the general holidays declared by the federal government. We also opine that the apex bank may continue to intervene at the interbank in the interim in order to clear up rising forex demands,” Afrinvest stated