Demand For T-Bills, FGN Bonds Rise Amidst Rate Hike
The debt capital market was active last year as rising bond yields on the back of the central bank hiking cycle magnified investor appetite for corporate bonds as they looked to diversify away from government securities.

A total of N734 billion has been raised across 19 corporate bond issuances, which represents 35.42 percent of 21 issuances that summed up to N542 billion, according to a report by Chapel Hill Denham Limited.

“Given the hawkish monetary stance, and aggressive domestic borrowing by the Federal Government (FG) IN 2023, we expect benchmark yields to remain range bound at the 14.50 percent and 15 percent,” said analysts at Chapel Hill Denham Limited.

There has been elevating bond yields since the first quarter of 2022 which spurred corporate borrowing by companies who look to lock in long-term investment at rates below inflation as the central bank embarked on an aggressive hiking of interest rate so as to tame rising inflation exacerbated by the Russia invasion of Ukraine that ballooned commodities prices and grains.

The Nigeria 10-year government bond has a 14.15 percent yield, according to data from World Government Bonds.

Drilling down data from Chapel Hill Denham shows issuances were N123.50 billion in 2017, N167.20 billion in 2018, N174.10 billion in 2019, and N482 billion in 2020.

Interestingly, issuances grew at a slower pace between 2020 and 2021 when bond yields were in the range of 7.65 percent and 3.14 percent, periods that coincided with the coronavirus pandemic.

The Central Bank of Nigeria (CBN) has increased the benchmark interest rate in the country by 100 basis points to 17.50 per cent from 16.50 percent. The MPC retained the Cash Reserve Ratio (CRR) of 32.5 percent while the liquidity ratio is kept at 30 percent.

“While the inflation rate moderated marginally in December, the Monetary Policy Committee (MPC) was of the view that the economy remained confronted with the risk of high inflation with adverse consequences on the general standards of living.

The inflation rate fell to 21.3 percent in December 2022 from 21.5 percent in November, according to data published on the National Bureau of Statistics website.

Some analysts expect interest rates to moderate in 2023 on the back of inflation peaking, and that will lead to a reduction in bond yields needed to spur corporate borrowing.

Analysts at Chapel Hill Denham are of the view that Eurobond issuances look dim in 2023 as the concerns on inflation remain and global market risk-off on African Eurobond.

A total of $15.10 billion Eurobonds in Federal Government of Nigeria (FGN) bonds are outstanding. Tenors range from 7, 10, and 30 years.

A total of $4.70 corporate Eurobonds issuance are outstanding.

“The current yields, whilst restricting market access for some issuers, presents an opportunity for buy and hold investors to pick up counters trading at attractive discounts,” summed analysts at Chapel Hill Denham.


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