Strong demand is expected at Kenyan and Nigerian debt auctions next week as investors try to lock in high yields before easing inflation in both countries drags the rates of return lower.
KENYA
Kenyan bond yields are likely to extend their falls as investors rush to lock in high rates before declining inflation drags them down further.
Yields on all government paper fell in heavily oversubscribed auctions in January and traders said they expected them to edge lower after the central bank held its key rate at 18 percent for a second straight month to curb inflation and stabilise the currency.
The central bank of Kenya plans to auction 91-day Treasury bills worth 4 billion shillings ($47.1 million) on Thursday, and 182-day bills worth 3 billion shillings on Wednesday.
“The inflation drop we’ve seen does not warrant a cut in the central bank rate. They may only consider cutting when inflation gets to around 15-16 percent,” Sammy Maikweki, a trader at Sterling Investment Bank, said.
“In the meantime, as inflation comes down we are seeing investors rushing to lock in the high rates, but the government is not pressured to take high bids and has capped the yields.”
Inflation in east Africa’s biggest economy edged down for a second straight month to 18.31 percent in January from 18.93 percent in December after hitting a peak of 19.72 percent.
The weighted average yield on the 182-day bills fell to 20.72 percent at an auction on Wednesday from 20.8 percent at the previous week, while the 364-day bills dipped to 20.96 percent at the same auction on Thursday, from 21.96 percent last sold in December.
The yield on the 91-day Treasury bill dipped to 20.5 percent at an auction on Thursday, from 20.61 percent a week ago.
Traders said they expected higher subscription rates at forthcoming auctions, suggesting bonds were in for a good year.
“We’re looking at a bullish scenario in the fixed-income market probably in the second quarter and third quarter of 2012 largely because of a decline in yields,” said Alex Muiruri, a trader at Africa Alliance Investment Bank.
NIGERIA
Expected strong interest in Nigerian treasury bills could drive down yields in the wake of the central bank’s decision to leave its benchmark interest rate unchanged at 12 percent, but bonds yields are expected to remain steady.
“We are seeing a pattern of increased interest in treasury bills as a result of a perception in the market that the era of high yields on debt instruments will not last,” one dealer said.
Dealers said most investors were looking to cash in on the current high yields because of a belief they will not last.
“Yields are already dropping on long-term instruments because of the central bank’s decision to leave its benchmark interest rate unchanged and the reduction in government appetite for borrowing in the first quarter,” another dealer said.
The 3-year bond was trading at 15.67 percent on Thursday, down from 16.35 percent on Monday, and other tenors were displaying a similar pattern.
Nigeria plans to auction treasury bills worth 149.27 billion naira ($926.42 million) at its regular debt auction next week.
Source: Reuters/Kevin Mwanza and Oludare Mayowa
