Yields on the federal government’s bonds increased in April as a result of the relative decline in oil prices as well as a negative shift in global sentiment during the month.

Data compiled by THISDAY showed that yields on all the seven actively traded FGN bonds increased during the month.While confirming the development, fixed income market analysts attributed it partly to the aggressive mop up of liquidity by the Central Bank of Nigeria (CBN).

For instance, while yield on the 4 per cent FGN April 2015 climbed by 50 basis points to 11.70 per cent as at April 30, from 11.20 per cent as at April 2, yield on the 15.10 per cent FGN bond due April 2017 also increased by 141 basis points to 11.84 per cent on April 30, from 10.43 per cent as at April 2.

Also, just as the 10.70 per cent FGN May 2018 jumped by 114 basis points to 11.83 per cent as at April 30, from 10.69 per cent on April 2, the 16 per cent FGN June 2019 also increased by 139 basis points to 12.04 per cent as at April 30, from 10.65 per cent.

The National Bureau of Statistics (NBS) Consumer Price Index had shown that inflation reduced to a five-year low of 8.6 per cent.
Nevertheless, Head of Research and Corporate Development, Consolidated Discounts Limited (CDL), Mr. Jimi Ogbobine, argued that the market largely ignored the benign inflationary outlook as a result of certain factors.

Ogbobine explained: “Firstly the 8.6 per cent inflation rate in March was largely achieved on the back of base effects arising from the increase in the pump price of petrol in 2012. The CBN estimates suggest that the rate of change in headline prices between March and August 2013 will average 9.6 per cent and range between 8.8 – 10 per cent – with the trough being in March. This means the inflation rate may be on the ascent in the months to come.

“Trading sentiments have been principally shaped by the CBN’s aggressive tightening in bid to manage liquidity and exchange rate concerns. The CBN has used open market operations (OMO) to mop up liquidity from the system to keep the naira within the target range. Worries have also grown around oil prices and its effects on the Nigerian economy.

“A dip in oil prices could affect the Naira’s strength. We have seen these worries being priced into the FGN bonds. This is why yields on all the FGN benchmark bonds have widened since April 17th when the inflation numbers were released.”

He however argued that the widening yields portend a good re-entry point for foreign portfolio investors.

“If this happens, it could ultimately lead to a taming of yields once again, thus creating a new trading cycle in the Nigerian bonds market,” he add

Source: Thisday (By Obinna Chima)