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Yields on Treasury Bills, Bonds to Remain Volatile in 2023

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The Nigerian treasury and bond yields are expected to continue to rise this year on the back of central bank hawkish stance, direction of global monetary stance globally, and supply and demand imbalance given government borrowings, according to analysts at Cordros Securities Limited.

As a result of local and macroeconomic uncertainties, analysts at the investment house estimate that the yields on Treasury bills and bonds will increase in the year and settle at 12.8% and 15.5% by the end of 2023.

The Nigeria 10 year government bond has a 13.819% yield, while the 3months, 6 months, 1 year, and 2 years shorter dated treasury yields 2.802%, 4.381%, 5.426%, and 11.703% as at January 1, 2023, according from World Government Bonds.

10 Years vs 2 Years bond spread is 211.6 basis points, which means the yield curve has not inverted yet, according to data from World Government Bonds.

An inverted yield curve occurs when short-term debt instruments have higher yields than long-term instruments of the same credit risk profile.

The volatility in the fixed income market in 2o22 that saw yields rise was due to an abrupt hike in the interest rates by a central bank who seeks to tether spiraling inflation.

The Central Bank of Nigeria lifted its monetary policy rate by 100 bps to 16.5% at its November 2022 meeting, following a 150bps hike in September, matching market expectations.

Nigeria’s inflation rose to 21.47% in November from 21.09% recorded in October, representing the 10th consecutive monthly increase since the start of the year.

It is interesting to note that central bankers across the globe have been rising interest rates to tame inflation exacerbated by spiraling energy prices brought on by Russia’s invasion of Ukraine.

Analysts at Cordros Securities noted that before the increase in the policy rate, yields were relatively flat despite the significant demand and supply imbalance as the Federal Government has continued to utilise the CBN’s Ways and Means as its  primary funding source rather than issuing debt in the market.

The Debt Management Office (DMO) issued N2.83 trillion in bonds, as of the November FGN bond auction (the last bond auction before the publishing of this report), mainly through re-openings of previously issued bonds, according to data from Cordros Securities.

“Given that issuances remained at a level easily absorbed by the market,  yields on Treasury bonds were tethered through the year, with bond yields  declining incrementally by the end of the first-half (H1-22),” said analysts at Cordros Securities.

But analysts at Afrinvest Securities are of the view inflation  is likely to moderate in 2023, and posit that yields are likely to fall on account of monetary policy easing.

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