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Bonds yield up on new cash reserves rule

By on May 21, 2015

Yields on Nigeria’s local bonds rose slightly on Wednesday after central bank’s harmonisation of the Cash Reserves Requirement (CRR) on public and private sector deposits triggered a sell-off by some investors.

At it’s rate-setting meeting on Tuesday, the (CRR), the amount the central bank requires banks to set aside, was revised to 31 percent for both public and private sector deposits. Previously the CRR on private sector deposits was 20 percent and 75 percent for public sector deposits.

Some banks that held more of the private sector deposits in CRR would be required to make an additional provision of 11 percent due by Thursday, triggering the selling down of their investment in bonds to raise additional money.

“Some banks that have their deposits skewed to private sector are selling down their bond holdings in order to make provision for the increase in the CRR on the deposit, driving up yields at the market,” one dealer said.

The yield on the benchmark bond maturing in 2024 inched up to 13.63 percent from 13.60 percent the previous day, while that on the 2022 paper rose to 13.59 percent from 13.51 percent.

Interest rates on short borrowing among banks eased, following the injection of portion of the budgetary allocations to states and local government in the banking system on Tuesday.

“Market liquidity increased to around 235 billion naira ($1 billion) on Wednesday from deficit level the previous day,” a currency dealer said.

Secured Open Buy Back (OBB) eased to 7 percent, while overnight placement fell to 8 percent from 15 percent the previous day, traders said.