Analysts Lower Expectation On Yields Upticks

With unsettled market dynamics in the Nigerian economy, Afrinvest, a leading investment firm in the country has reduced expectations of upticks in yields on fixed interest securities for the second half of 2022.

Though, the market has seen yield repricing following a fast and furious hawkish move by the Nigerian monetary authority in May, where the policy committee booked a 150 basis points increase in benchmark interest rate.

Though market adjusted, headline inflation pressures persist, hitting 17.71 per cent in May, while analysts’ consensus indicates price level would stay hot for the rest of the year.

In its market report, Afrinvest noted that said it maintains a bearish outlook although the investment firm hinted that it has lowered expectations of upticks in yields to reflect the prevailing market dynamics.

In its outlook for 2022, Afrinvest had predicted an increase in domestic bond sales to exceed the N2.6 trillion budgeted to an estimate of N3.1 trillion in 2022.

“While our forecast was spot on, the shelving of further Eurobonds sales for the remainder of 2022 after a $1.25 billion issuance in the first half of 2022 means the domestic target might increase to N5.6 trillion in 2022 as DMO turns to the local market for additional financing”.

Following an adjustment to the fiscal year 2022 spending plan by lawmakers, Nigeria’s supplementary budget lifted domestic borrowing target to N2.6 trillion. On that note, Analysts said in the report that based on the new estimates, there would be legroom for issuance of up to N3.6 trillion in the second half of 2022.

“We estimate total inflows – including in and outs- in the second half of 2022 at N2.8 trillion compared to N4.6 trillion in the first half of 2022, with FGN bond coupon payments accounting for 15.9 per cent of total inflows.

Afrinvest analysts said they still entertain the possibility of OMO rate hikes to incentivise foreign portfolio inflow as part of attempts to improve the attractiveness of Naira assets.

“Our view is premised on the decoupling of the Monetary Policy Rate (MPR) from key market rates including OMO rates. For instance, although the MPR was unchanged at 11.5% in 2021, OMO primary market rates were adjusted upwards by the CBN in Q1-2021 to lure hot money, driving the short end of the curve upward in the secondary market”, Afrinvest explained.