Nigeria bond yields seen flat at auction next week

Yields on Nigerian bonds are seen stable at the next debt auction on Sept. 16 after central bank declined to sell its short-dated Treasury bills to commercial lenders who were asking for higher returns in the last two weeks.

Okonkwo, DMO boss

Nigeria plans to raise about 70 billion naira ($351.76 million) in bonds with maturities of 5 years and 20 years on Sept. 16. But dealers said yields may not be far from the last auction given government reluctance to borrow at higher returns.
The 2020 bond was sold at 15.41 percent while the 2034 paper fetched 15.19 percent at the last auction.
"The central bank has declined to sell open-market operation (OMO) treasury bills to commercial lenders in the past two weeks due to its unwillingness to raise yields in line with bids by investors," one dealer said.
The market may have seen this development as a signal that government would not be willing to raise yields at the auction next week, spurring local pension funds to instead take positions in the secondary market.
"We have seen some buying interest at the secondary market in spite of the auction of JP Morgan to remove the country's bond from its index," another trader said.
U.S. investment bank JP Morgan said on Tuesday it would remove Nigeria from its Government Bond Index (GBI-EM) by the end of October, after warning the government that currency controls were making transactions too complicated.
The initial reaction to the JP Morgan move led to an increase in yields across the board on Nigerian local debt, but later moderated after regulators introduced a new spread to stem volatility.
Yields on local debt crossed the 17 percent line on Wednesday on initial reaction to the JP Morgan auction, but moderated to 16.13 percent on Friday for benchmark 2024 paper from 16.02 percent last week.
Yield on 2022 paper traded at 16.13 percent compared with 16.08 percent last week, while the longest tenor paper 2034 traded at 16.11 percent against 15.94 percent last week.