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Debt Securities

Rising bond yields trigger stock market sell-offs

The movement in the bond market has had an impact on the stock market.

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company NSE the value of your assets, investments, invest, Rising bond yields trigger stock market sell offs

The recent rise in bond yields has triggered a stock market sell-off that is in its 5th straight week. Last week, a T-bill with 364 days to maturity was sold at 5.5%, previously it had sold at 4.0% with analysts speculating that price would reach 10% before the year ends.  This movement in the bond market has had an impact on stock market.

Since February, investors have lost a whopping N1.6 trillion in market capitalization as investors rotate liquidity away from stocks into fixed income securities. Analysts linked recent investors’ downbeat mood during the week to the result of the treasury bills auction.

They also opine that this could lead to a further decline in participation in the market when compared with the last released report NSE report on market operators on the Domestic and Foreign Portfolio Investment (FPI) flows.  January 2021 and December 2020 showed that total domestic transactions decreased by 7.21% from N199.32billion in December to N184.94billion in January 2021. Furthermore, total foreign transactions decreased even more by 32.04% from N69.92billion to N47.52billion between December 2020 and January 2021.

In a chat with a Fixed income trader in UBA, Udegbunam Dumebi, he postulated that the recent move is not out of par when compared to the international markets, especially emerging economies. When international investors look at local currency yields, they usually compare yields with local inflation, with a simple inflation adjustment being an adequate guide.

In that regard, Nigeria would need to be more competitive. Hence it would not be alarming if we see higher yield rates. Take the one-year yield rate and adjust for inflation, you would realize that Nigeria is the least favourable when compared with Ghana or Kenya.

Dumebi also raised alarm about Nigeria’s debt and the ability to payback. Stating that for now, figures might seem normal but if Nigeria continues to increase its external and internal debts, repayments might be a problem in lieu of the mesmerizing growth ascertained by the Nigerian economy in 2021.

Another factor to consider is also the rising insecurity skyrocketing food prices and the disharmony between fiscal and monetary policy. Furthermore, he suggests that investors’ generally see higher yields as attractive, however, taking into cognizance the duration of risk in the bond market. It will be advisable for investors to remain risk-off while taking a position on yield with high coupons such as 2008 and 2029 bonds.

According to Dipo Adeoye, ED, Treasury & Operations, Abbey Mortgage Bank, there is naturally an inverse relationship between the bond yield and the stock market. That is, as the interest rate in the fixed market props up, investors with the view of risk to reward will be prudent to shift their assets to the bond market and away from the fixed income market. Hence, the recent move is natural with historical precedence.

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He also identified the relationship between the bond market and inflation saying that they move in the same direction and any mismatch is always short- term. Adeoye’s advice to investors is to look for the right balancing point on their portfolios as he speculates that interest yield for the bond market would still increase further. His advice to investors is to be watchful and swift in taking advantage of the expected increase as delay may seem costly because when the bond yield reaches its optimal point, the demand usually surpasses the supply giving a kind of scarcity to the instrument.

Analysts advise investors to take positions in only fundamentally defensible stocks as recent market movement may hit corporate earnings negatively.

Ubah,Jeremiah ifeanyi is a PhD candidate of Economics in Covenant university. He has held positions as the financial manager in Opera and is also a research ambassador in M&S research Hub. Ifeanyi is currently the financial market analyst for Nairametrics. Follow Ifeanyi on Twitter @ubahjc

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    Debt Securities

    DMO to auction N150 billion bond for May on behalf of FG

    The DMO on behalf of the Federal Government has announced the offer of N150 billion bonds for subscription by auction for the month of May.

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    The Debt Management Office (DMO) on behalf of the Federal Government has announced the offer of N150 billion bonds for subscription by auction for the month of May.

    A breakdown of the bonds shows that a 10-year reopening bond is to be offered at the rate of 16.2884% with a maturity date in March 2027; a 15- year reopening bond will be offered at 12.5% with a maturity date in March 2035; and the third and longest bond which is a 30-year reopening bond will be offered at 14.8% and mature in April 2045.

    This disclosure is contained in a circular issued by the DMO on May 11, 2021, and can be seen on its website.

    The circular from the DMO states that the bonds which will be auctioned on May 19, 2021, have a settlement date of May 21, 2021, adding that the unit sales is N1,000 per unit subject to a minimum subscription of N50,000,000 and in multiples of N1,000 thereafter.

    It also states that the interest is payable semi-annually with the redemption expected to be in bullet payment on the maturity date.

    In case you missed it

    The DMO had earlier disclosed that N150 billion Federal Government’s bonds offered for the month of March were over oversubscribed by N115.68 billion

    The total subscription received from investors for the bonds was N265.68 billion, comprising N34.69 billion at 12.25% FGN with a maturity date of March 17, 2027; N56.13 billion at 13.34% with a maturity date of March 27, 2035; and N174.86 billion at 13.85% with a maturity date of July 24, 2045.

    The auction result showed that the total bids were 50, 75 and 184, while the successful bids were 23, 43 and 91 for the 3 bonds allotted.

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    Debt Securities

    DMO announces May 2021 FGN savings bond offer for subscription

    The DMO has announced the offer for subscription of the May 2021 Federal Government Savings Bond to investors.

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    The Debt Management Office (DMO), on behalf of the Federal Government has announced the offer for subscription of the May 2021 Federal Government Savings Bond to investors.

    This disclosure is contained in a circular issued by the DMO on May 3, 2021, and can be seen on its website noting that there are 2-year and 3-year savings bonds.

    A breakdown of the bonds shows that the 2-year FGN savings bond will be due on May 12, 2023, at 7.753% per annum and the 3-year FGN Savings Bond which will be due on May 12, 2024, at 8.753% per annum.

    The offer has an opening date of May 3, with a closing date of May 7, while the settlement date is May 12, with the coupon payment dates as follows: August 12, November 12, February 12 and May 12.

    The circular also states that the unit of sale is N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50,000,000

    It also states that the interest is payable quarterly with the redemption expected to be in bullet payment on the maturity date.

    In case you missed it

    It can be recalled that last month, the DMO on behalf of the Federal Government, offered for subscription April 2021, Federal Government Savings Bond to investors.

    The offer consisted of a 2-Year FGN Savings Bond due April 14, 2023, at 5.522% per annum and a 3-year FGN Savings Bond due April 14, 2024, at 6.522% per annum.

    The opening date was April 6, 2021, with the closing date on April 9, 2021, settlement date on April 14, 2021, and the coupon payment dates on July 14, October 14, January 14, and April 14.

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