A sell-off of Nigerian bonds triggered by falling global oil prices is seen continuing next week and the naira is likely to weaken further, while Kenya’s central bank is expected to keep rates steady despite increasing liquidity.
NIGERIA
Yields on Nigerian bonds are expected to rise next week with investors expected to cut back on their positions before the year-end in order to raise local currency for their obligations.
Nigeria’s local debt market has experienced a sell-off in recent weeks on concerns about falling global oil prices and their impact on the local currency, which has lost about 11 percent against the dollar this year.
The Central Bank of Nigeria (CBN) devalued the naira by 8 percent in a one-off move last week as it sought to stem a slide in the country’s foreign exchange reserves which have been hit by the oil price slump. Investor concern has reduced hard currency inflows into the country’s debt and equity markets.
“Liquidity was tight in the week … and this has triggered some sell-off to raise cash by some investors,” one dealer said.
Buying of bonds by local pension funds in the past few weeks has failed to reverse the tide, traders said.
Most offshore investors have been on the sidelines, monitoring the impact of monetary policy measures on the local currency and how the government plans to cope with dwindling revenue from weaker oil prices.
Yields on the benchmark 10-year bond rose to 13.45 percent from 13.30 percent last week, while the 2016 bond was trading at 13.70 percent against 13.40 percent last week. The 2022 bond was trading at 13.72 percent versus 13.14 percent previously.
KENYA
Kenyan debt yields are seen holding steady next week even though liquidity is expected to surge, traders said.
The Central Bank of Kenya will be auctioning 91-day , 182-day and 364-day Treasury bills worth a total of 12 billion shillings ($132.82 million) at two separate sales.
Alex Muiruri, a fixed-income trader at Kestrel Capital, said the central bank will want to maintain the yield at around 9 percent ahead of announcing a new Kenya Bank Reference Rate (KBRR) in January.
“We are very close to the year-end and pretty much the Treasury wants rates to be flat,” he said.
The KBRR rate, which is in large part determined by the yield on benchmark Treasuries, is announced every six months and used by banks and mortgage companies for loan pricing.
“We have a lot of T-bill redemptions next week which will be rolled over so I think we will have high subscription … but in terms of yields, T-bills will stay flat,” Muiriri said.
Reuters
