Bond yields are expected to rise this week, spurred by election spending to woo voters.
“The expectation is that yields should be on the upward trend as we move toward election. We are expecting to see an increase in liquidity levels and some of it coming into the bond market,” one dealer told Reuters.
Traders said secondary market trading remained subdued because of uncertainty around the election, while the initial buying of the 2024 tenor debt note by some lenders has declined.
Nigeria plans to raise N90 billion ($465.72 million) in sovereign bonds with maturities ranging between five and 20 years at its next regular auction on February 11.
The five-year debt note is a fresh issue, while the 10-year and 20-year bonds are re-openings of previously issued paper.
Traders said interest in the new issue could rise, while returns on the paper is expected to set the benchmark for the pricing of other bond tenors at the secondary market.
Yields on the 2016 debt note fell to 14.99 per cent from 15.03 per cent last week. The 2022 paper was trading at 15.21 per cent against 15.20 per cent, while the 2024 bond was trading around 15.21 per cent against 15.06 per cent last week.
Meanwhile, the naira ended at a record low closing against the dollar on Friday, February 6, despite intervention by the Central Bank of Nigeria (CBN), which sold an undisclosed amount of dollars to boost interbank foreign exchange (forex) market liquidity and prop up the naira.
The unit, which opened at N193.60, firmed to N185.80, lifted by the intervention. It quickly fell back to close at N193.90. The naira had closed at N192.70 the previous day.
Currency users were holding on to cheap dollars bought at the almost-daily CBN interventions, dealers said, because they believed the naira would continue to weaken as falling oil prices continue to hurt the economy.
Interbank lending rates climbed 6.5 percentage points on February6 to 15.75 per cent on average from 9.25 per cent the previous week, after the CBN debited deposit money banks’ account to meet their cash reserves requirement (CRR) this week.
The CBN was said to have withdrawn about N167 billion ($861.7 million) on Wednesday, February 4 in effort to draining liquidity.
The CBN requires commercial lenders to set aside 75 per cent of public sector and 15 per cent of public sector deposits in liquid cash in their account with it the CBN. The regulator debit banks accounts every months to enforce this requirement.
Banks’ cash balance with the CBN dropped to about N64.6 billion on February 6 compared with N393 billion the previous week.
“We see rates rising further next week due to anticipation of further liquidity drain from NNPC cash withdrawal and funding for bond sales,” one dealer said.