Interbank CBN Prices of FGN Bonds in the secondary market are expected to continued their upward trend this week, amidst inflow of N413 billion into the interbank money market, even as directive of the Central Bank of Nigeria (CBN) excluding local investors from participating in secondary market treasury bills auctions, alters direction of investments in the fixed income market in favour of FGN bonds. Last week, prices of FGN Bonds in the secondary market (Over the Counter, OTC) rose following increased demand driven by four factors.
The factors are: Inflow of N142.8 billion from payment of matured bonds; inflow of N41 billion coupon payment; unsuccessful bids worth N113.18 billion from the FGN bond auction conducted by the Debt Management Office (DMO); as well as the directive of the CBN excluding local investors from participating in secondary market (Open Market Operation, OMO) treasury bills (TBs). Leading the price gains induced by the increased demand occasioned by the above factors in the OTC segment of the bond market, were the 5-year, 14.50% FGN JUL 2021 bond, the 7-year, 13.53% FGN MAR 2025 bond and the 20-year, 16.25% FGN APR 2037 bond.
Business confidence in economy rises in July — CBN survey(Opens in a new browser tab) Data from DMDQ showed that the 5-year, 14.50% FGN JUL 2021 bond gained 80 kobo while the yield fell to 13.92 percent last week from 14.46 percent the previous week. The 7-year, 13.53% FGN MAR 2025 gained 8 kobo while the yield fell to 14.11 percent last week from 14.13 percent the previous week. Similarly, the 20-year, 16.25% FGN APR 2037 bond gained 78 kobo while the yield fell to 14.29 percent last week from 14.40 percent the previous week. However, the 10-year, 16.29% FGN MAR 2027 debt lost 55 kobo and its corresponding yield rose to 14.20 percent last week from 14.09 percent the previous week.
Analysts projected that this trend will persist this week, citing the continued impact of the CBN directive, especially the resulting liquidity build up in the interbank money market, which would be aggravated with inflow of N413.19 billion from maturing TBs. “We expect the bond market to trade more positively, as current CBN policy direction could drive increased participation in the bond market”, said analysts at Lagos based Vetiva Capital Management Limited.
Making a similar projection, analysts at Lagos based Zedcrest Securities Limited, said: “We maintain a bullish outlook for bonds in the interim, as local investors look to bonds as alternative assets in light of restrictions on OMO securities by the CBN.” In the same vein, analysts at Lagos based Cowry Assets Management Limited said: “In the new week, against the backdrop of boost in financial system liquidity, we expect FGN bond prices to rally, with corresponding decline in yields, amidst expected buy pressure at the OTC market.” Business confidence in economy maintain upward trend Meanwhile business confidence in the macro economy maintained its upward trend in October, rising by 0.6 index points to 27.3 index points from 26.7 index points in September.
The CBN disclosed this in its Business Expectation Survey report released on Friday. The report stated: “At 27.3 index points, the overall confidence index (CI) indicated respondents’ optimism on the overall macro economy in the month of October 2019. The business outlook for November 2019 showed greater confidence on the macro economy, with 59.6 index points. “The optimism on the macro economy in the current month was driven by the opinion of respondents from services (15.1 points), industrial (9.1 points), wholesale/retail trade (2.5 points) and construction (0.5 points) sectors. Similarly, the major drivers of the optimism for next month were services (32.4 points), industrial (19.9 points), wholesale/retail trade (5.5 points) and construction (1.9 points) sectors”. PMI report indicates uptick in economic expansion Furthermore, the Purchasing Managers Index (PMI) survey report, indicated increased expansion of activities in the manufacturing and non manufacturing segments of the economy in October.
According to the survey report released by the CBN, the manufacturing PMI and the non manufacturing PMI both rose at a faster rate to 58.2 index points in October from their respective levels in September, with 28 subsectors, out of the 31 subsectors surveyed recording expansion. The report stated: “The Manufacturing PMI in the month of October stood at 58.2 index points, indicating expansion in the manufacturing sector for the thirty-first consecutive month. “The index grew at a faster rate when compared to the index in September. Thirteen of the 14 surveyed subsectors reported growth in the review month in the following order: petroleum & coal products; cement; electrical equipment; furniture & related products; fabricated metal products; printing & related support activities; textile, apparel, leather & footwear; food, beverage & tobacco products; nonmetallic mineral products; plastics & rubber products; primary metal; chemical & pharmaceutical products; and transportation equipment. The paper products subsector recorded decline in the review period.
“The composite PMI for the nonmanufacturing sector stood at 58.2 points in October 2019, indicating expansion in the Non-manufacturing PMI for the thirtieth consecutive month. “The index grew at a faster rate when compared to its level in September 2019. Fifteen of the 17 surveyed subsectors recorded growth in the following order: repair, maintenance/washing of motor vehicles; transportation & warehousing; real estate rental & leasing; agriculture; utilities; finance & insurance; accommodation & food services; wholesale/retail trade; educational services; construction; information & communication; professional, scientific, & technical services; water supply, sewage & waste management; health care & social assistance; and electricity, gas, steam & air conditioning supply. Vanguard
