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FG to raise bonds at lower yields

By on September 15, 2015

Yields on Federal Government bonds are expected to be stable at the next debt auction on September 16 after the Central Bank of Nigeria declined to sell short-dated Treasury bills to banks asking for higher returns in the last two weeks, Reuters has reported.

The Federal Government is planning to raise about N70bn ($351.76m) in bonds with maturities of five years and 20 years on September 16.

But dealers said yields might not be far from the last auction given the government’s reluctance to borrow at higher returns.

The 2020 bond was sold at 15.41 per cent, while the 2034 paper fetched 15.19 per cent at the last auction.

“The central bank has declined to sell open-market operation treasury bills to commercial lenders in the past two weeks due to its unwillingness to raise yields in line with bids by investors,” one dealer said.

The market may have seen this development as a signal that government would not be willing to raise yields at the auction this week, spurring local pension funds to instead take positions in the secondary market.

“We have seen some buying interest at the secondary market in spite of the auction of JP Morgan to remove the country’s bond from its index,” another trader said.

The United States investment bank JP Morgan had on Tuesday said it would remove Nigeria from its Government Bond Index (GBI-EM) by the end of October, after warning the government that currency controls were making transactions too complicated.

The initial reaction to the JP Morgan move led to an increase in yields across the board on Nigerian local debt, but later moderated after regulators introduced a new spread to stem volatility.

Yields on local debt crossed the 17 per cent line on Wednesday on initial reaction to the JP Morgan auction, but moderated to 16.13 per cent on Friday for benchmark 2024 paper from 16.02 per cent the previous week.

Yield on 2022 paper traded at 16.13 per cent compared with 16.08 per cent the previous week, while the longest tenor paper 2034 traded at 16.11 per cent against 15.94 per cent the previous week

Meanwhile, subscription and yields on Kenyan Treasury bills are expected to increase this week amid indications the central bank will take on more debt at slightly higher rates.

A fixed income trader at Kestrel Capital, Mathangani Kariuki, said last week’s auction results, where the rates rose despite higher subscriptions, indicated that the central bank would likely let the rates move up in a bid to lock in better volume.

“The market is aware the central bank is in need of funding and they will be looking to push the central bank (rates) high. So even though subscription levels will go up, we should see the yields edging up as well,” Kariuki said.

 

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