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Wednesday, 13 December 2017

Investors dumping Nigeria fixed income assets after yields crash, as govt plans to redeem matured bill

Many foreign portfolio investors have started closing their position in Nigeria's volatile fixed income market in the wake of falling yields as a result of the planned redemption of about 200 billion naira in maturing treasury bill by the government, traders said on Wednesday.Image result for Nigeria Naira and dollar
Yields on the short-dated Nigeria's treasury bills have crashed more than half since the Debt Mangement Office (DMO) on Tuesday announced that it planned to redeem about 200 billion naira worth of maturing Treasury bill by the end of this month. 
Traders said the persistent crashing of Treasury bills yields has effectively increased turnover in the FX market with several foreign investors closing out their position and leaving the country.
Interbank lending rate crashed to around 2.9 percent on Tuesday from around 6 percent last week on the back of cash flow from budgetary allocations, refunds on excess debiting for foreign exchange purchase and the happenings in the fixed income market, traders said.
Also, there was a daily turnover of $306.30 million on Tuesday as reported on FMDQ's platform, an over 200 percent increase from Monday's $96.77 million, indicating the gradual capital flight by PFI. 
The debt office has said it will redeem treasury bills due on December 14 and December 21 rather than rolled over as before, freeing up space in the bond market for corporates as the government tries to rebalance its debt mix.
The announcement has sent yields on the short-dated debt instrument down by more than half.
Nigeria plans to refinance part of its domestic debt through a Eurobond raised recently, while the central bank has informed money market dealers that it will no longer issue fresh treasury bill both at the primary and the Open Market Operations (OMO) for the rest of the year.
The chief executive of FMDQ OTC Securities Exchange, Bola Onadele Koko said the hold of short-dated debt instrument issuance by the government has opened a fresh opportunity for the private sector to tap into the market.
The central bank has kept liquidity tight in Nigeria to support the naira by attracting foreign inflows into its bond market to boost dollar liquidity in the wake of a currency crisis in Africa’s biggest economy.
However, the move pushed up costs, especially for the government, which is battling to contain a widening deficit and reduce debt service cost
Yields on treasury bills dropped by more than half to around 7 percent across the board following the announcement, traders said. With the repayment, the DMO will not hold an auction of treasury bills this month, they said. The next auction will be on Jan. 3.
“The redemption over time will help reduce the refinancing risk associated with short-term borrowings through treasury bills,” the DMO said in a statement.
The DMO has said it was wanted to raise Eurobonds or syndicated loans for $3 billion to redeem part of a local treasury bill holding worth 2.7 trillion naira ($8.8 bln).
Nigeria sold $3 billion worth of Eurobonds last month, out of which $2.5 billion is to part-finance 2017 budget deficit and the balance for the refinancing its domestic debt.


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