Yields on Nigerian bonds are expected to climb this week on tight liquidity in the money market and a sell-off by offshore investors, partly deterred by slowing economic growth.

Yields on all tenors have risen on the back of a sell-off by mostly offshore investors and commercial banks covering short naira positions as the Central Bank of Nigeria seeks to support the local currency.

The CBN had this month directed lenders to pay for dollar purchases 48 hours in advance in a move aimed at curbing foreign exchange demand.

Foreign exchange traders said weak economic output growth data released last week had also triggered sell-offs by some offshore investors, Reuters reported.

The nation’s economic growth slowed sharply in the second quarter with annual growth slipping to 2.35 per cent from 6.54 per cent a year earlier, the National Bureau of Statistics said last week.

Yields on the longest tenor 2034 debt rose to 15.71 per cent week-on-week from 15.50 per cent the previous week.

The benchmark 2024 paper rose by about 52 percentage points to 15.97 per cent from 15.45 per cent, while the 2022 debt was trading higher at 15.87 per cent against 15.50 per cent.

The Head, Research and Investment, Afrinvest West Africa Limited, Mr. Ebo Ayodeji, believes the slow pace of economic growth will continue to impact the financial markets in months to come.

According to him, the bond marked is one of the key segments that will witness this.

Yields on Kenyan Treasury bills are expected to rise, buoyed by the central bank’s efforts to support the weakening shilling.

Yields of 91-day, 182-day and 364-day bills are hovering around their highest levels for three years or more. The yields at last week’s auction of bills were 11.521 per cent for 91-day, 12.363 per cent for 182-day and 13.819 per cent for 364-day.

“There is still upward pressure on rates,” a fixed income trader at Kestrel Capital, Mathangani Kariuki, said

The CBN has been mopping up excess liquidity in the market using short-term instruments called Term Auction Deposits, whose rates are capped at 14 per cent and have terms of seven to 28 days.

The mop ups tend to support the shilling.

Traders said rates on the TADs had risen above 13 per cent.

“T-bills will have to compete with that,” fixed income trader at Sterling Investment Bank, Sammy Maikweki, said.

He added, “The yields will continue going up.”

This week, the central bank will offer Treasury bills of all tenors worth a total 11 billion shillings ($106.08m).

Source: Punch