Yields on Nigeria bonds and treasury bills rose across all maturities on Thursday after a pickup in inflation in Africa’s second-biggest economy, dealers said, prompting investors to hold positions ahead of next week’s rate decision, Reuters reported.

The Central Bank of Nigeria will hold its rate setting meetings next Tuesday and analysts expect the bank to keep interest rates on hold at 12 per cent, despite an uptick in inflation.

Bond and treasury bill yields had adjusted upwards, rising between 20 and 100 basis points, dealers said, after April inflation climbed to 12.9 per cent, year on year, from 12.1 per cent in March.

Successive hikes in interest rates by the CBN had spurred a sustained rally in bonds, but Tuesday’s inflation data reversed some of those gains, traders said.

The shortest three-year bond inched up to 15.4 per cent on higher inflation, from 15.1 per cent, while longer tenor 20-year paper was unchanged at 14.39 per cent.

Prior to the release of inflation, the five-year bond was yielding 15.05 per cent, but had now gone up to 15.36 per cent, one dealer told Reuters, adding that next week’s rate decision was going to be key for bond yields.

“We are waiting to figure out what the central bank will do. Will they react to the trends in the rise in inflation? So far, investors have priced in a hold decision for rates,” he said.

Nigeria auctioned N35bn worth of five-year bonds maturing in 2017 on Wednesday at a yield of 15.24 per cent, compared with 15.1 per cent at its last auction in April.

“The market and central bank are both anticipating a peak in inflation of around 14.5 per cent year-on-year in Q3. This mitigates the possibility of an unexpected hike in policy rates or a significant sell-off in bonds,” an emerging market strategist at Standard Bank, Mr. Samir Gadio, wrote in a note to clients.

Domestic pension funds, the largest buyers of Nigeria government debt, have switched from relatively poorly performing equities over the last year into fixed income.

Source: Punch