Fixed income market stays bearish as CBN resolves to keep rates down

THE fixed income market investors sentiment were broadly bearish Tuesday on the Central Bank of Nigeria’s Monetary Policy Committee (MPC) resolves to keep pricing rates down.

Amidst search for high return, fixed income market investors were disappointed as committee maintains status quo on policy rates.

Meanwhile, funding pressures eased further having been supported by open market operations (OMO) maturities totaling N190.15 billion.

The Open Buy Back (OBB) and Overnight (OVN) rates dropped by 100 basis points (bps) and 125 bps to 4.50% and 5.25% respectively.

“Barring a major OMO auction by the CBN, we expect funding pressures to remain benign, at least until Friday’s retail FX auction”, Chapel Hill Denham said in a report.

The firm stated that as expected, sentiments were broadly bearish in the fixed income market as investors remained cautious ahead of MPC decision.

Short term rates expanded, as the Nigerian Treasury bill and OMO benchmark curves rose by an average of 3bps and 1bp to 0.52% and 1.21% respectively.

“Barring a major OMO auction by the CBN, we expect funding pressures to remain benign, at least until Friday’s retail FX auction”, Chapel Hill Denham said in a report.

The firm stated that as expected, sentiments were broadly bearish in the fixed income market as investors remained cautious ahead of MPC decision.

Short term rates expanded, as the Nigerian Treasury bill and OMO benchmark curves rose by an average of 3bps and 1bp to 0.52% and 1.21% respectively.

In the bond market, yields expanded across the benchmark curve by an average of 27bps to 7.71%, driven by repricing at the short (+20bps to 4.63%), medium (+23bps to 8.33%) and long (+38bps to 9.30%) end of the curve.

Analysts said in line with expectation, the MPC maintained status quo at the 2-day MPC meeting which ended today.

The MPC voted unanimously to retain the Monetary Policy Rate (MPR) at 11.50%, and the asymmetric corridor around the MPR at +100bps/-700bps.

The Committee also retained the Cash Reserve Requirement (CRR) at 27.5%, and liquidity ratio at 30.0%.

Prior to the MPC meeting, investors in the fixed income market were positioning for a tighter monetary policy framework over the medium term.

Notably, the benchmark yield curve has risen by an average of 233bps from the lows of about 3.3% in October 2020 to an average of 5.6% presently, with long term rates faster than short term in a bear steepening of the curve.

“Despite the neutral outcome of this meeting, investors will be paying close attention to the outcome of the next few T-Bill auctions to test the CBN’s resolve in keeping short term rates depressed at current level.

“However, based on liquidity factors and government deficit financing plans, our medium term outlook for yields remains biased to the upside”, Chapel Hill Denham said.

In the currency market, the Naira strengthened marginally against the United States dollar at the I&E Win-dow by 0.04% or 17 kobo to 394.00.

In the parallel market, the Naira weakened substantially by 0.6% or N3 to 480.00.

Fixed Income Market Stays Bearish as CBN Resolves to Keep Rates Down