Cautious trading seen in Nigerian bond market

Nigeria's debt market is expected to take its direction from the foreign exchange market in the near term as the central bank moves to restore confidence in the local currency after the suspension of the governor on Thursday.

Ag CBN Governor, Alade

Nigeria's graft-fighting Central Bank Governor Lamido Sanusi said on Friday he would go to court to challenge his suspension by the president, saying he did not want his job back but wanted to question the legality of the move .
President Goodluck Jonathan suspended Sanusi on Thursday, removing an increasingly outspoken critic of the government's record on tackling rampant corruption in Africa's top oil producer.
The naira weakened to a record low of 169 to the dollar on the news and bond yields rose 40 basis points on average across the curve, before the FX, bond and money markets stopped trading due to volatility.
Trading resumed after the central bank intervened with dollar sales and the naira rebounded to 165.
On Friday, the naira strengthened further to 164.40 and bond yields fell amid renewed buying from domestic pension funds.
Analysts and traders said they expect cautious trading in the coming days as investors seek clarity on the implications of Sanusi's departure.
"Investors are watching closely how the central bank is able to manage the fall-out from the suspension of its governor in term of restoring confidence in the forex market," one dealer said.
Offshore investors could also withdraw in the short term, said Giulia Pellegrini, sub-Saharan Africa strategist at JP Morgan.
"In the immediate aftermath of Sanusi's removal, we expect particularly foreign investors to continue reducing their Nigeria holdings with the naira remaining under pressure," she said.
On Friday, the 3-year bond was trading at a yield of 13.9 percent, compared with 13.82 percent last week. The yield had risen to 14.3 percent on Thursday amid a sell-off by offshore investors.
The yield on the 7-year paper was at 14.75 percent, up 80 basis points from a week ago, while that on the 10-year paper was 10 basis points higher at 14.07 percent.
 
KENYA
Yields on Kenyan Treasury bills on sale next week are seen holding steady or rising slightly, while subscription rates are expected to be low due to tight shilling liquidity in the money markets.
The central bank will auction 91-day, 182-day and 364-day Treasury bills worth a total of 9 billion shillings on Wednesday and Thursday.
"Chances are the subscription is going to be pretty low the way it has been coming out in previous weeks, as liquidity is pretty tight at the moment," said Pooja Shah, senior dealer at KCB Bank Group.
"In terms of interest rates we see them around that area or a slight uptick of a few basis points."
At this week's sale, the weighted average yield on the 91-day Treasury bills inched lower to 9.116 percent from 9.154 percent last week, while that on the 182-day paper fell to 10.326 percent from 10.357 percent, the central bank said.
The yield on the 364-day Treasury bills eased to 10.654 percent from 10.672 percent last week.
Traders said their long-term outlook was for yields to keep falling.
"It's been dropping gradually, but you know when you drop 0.3 basis points that's not much. The overall direction for the next couple of months would be for the yields to come off," a senior trader at one commercial bank said.