Nigeria’s fixed income market transactions volume soared in six months in value and volume as the total value of instruments sold within the period rose to N19.41 trillion as against N4 trillion recorded in the corresponding period in 2023.
The increase was driven by treasury bills and bond offers by the Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) to stabilise the exchange rates and tame inflation.
Given the effective yields of between 18 per cent and 26 per cent, which are considered risk-free, the asset classes saw positive momentum, with investors attracted by relatively stable yields.
During the period, the CBN sold N8.85 trillion in T/Bills and N6.42 trillion in open market operation (OMO) while the DMO sold N4.1trillion in FGN bonds, bringing the total value of fixed income Instruments sold in H1 to N19.41trillion.
Despite the CBN’s liquidity withdrawal measures, system liquidity conditions improved at the end of June to N514.2 billion, supported by monthly FAAC inflows of N5.78 trillion in the first five months of the year.
The CBN signalled its intent to tighten liquidity levels and reduce inflation, resulting in the open buyback (OBR) and overnight (OVN) rates closing in H1 at 24.17 per cent and 25 per cent, respectively, up from single-digit levels of 2 per cent and 2.8 per cent in H1 2023.
Also, at the FGN bond market, the DMO raises rates to woo investors, for instance, at the monthly bond auctions, the DMO raised N4.11 trillion in bonds (both re-openings and new issues) in H1 2024 compared to N3.57 trillion in H1 2023, inclusive of non-competitive allotments worth N414.5 billion.
In addition, primary market rates also hit a high of 24.45 per cent, particularly on longer-dated bonds in March due to CBN tightening measures.
Average marginal yields in the secondary market increased by 456 basis points to 18.64 per cent in H1 2024 (compared to 14.9 per cent in H1 2023) as the DMO mopped up excess liquidity in the system.
However, experts, at the weekend, argued that the current uptick and elevated yield in fixed instruments, in addition to the macroeconomic challenges would spur apathy in the equities market, impact negatively on corporate earnings and exert sell pressure in the bourse in the second half of the year (H2).
Chief Executive Officer of Cowry Asset Management Limited, Johnson Chukwu, said yield on fixed income instruments will remain elevated in H2 2024 thereby serving as additional negative pressure on the equities market.
According to him, the development is expected to impact negatively on corporate earnings, thereby exerting a selling pressure on equities.
Therefore, he suggested that investors should focus on fixed-income instruments and prioritise money market and bond investments in H2 due to high yields and lower risk compared to equities.
For those investing in equities, he urged them to focus on defensive stocks and bellwether sectors such as agriculture and oil and gas.
Head of Equity at Planet Capital, Paul Uzum, also noted that interest rates for money market instruments will remain elevated, as the CBN maintains high rates to tame inflation.
According to him, this is expected to make money market instruments more attractive compared to the stock market, potentially dampening a broad market rally.
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