Investors reprice on Naira assets risk, driving yield on OMO bills, domestic bonds


The spread of the COVID-19 disease across the world triggered unanticipated global financial market volatility and Nigeria was not left out. FPIs and local investors flew to safety amid the collapse in oil prices and currency adjustments.

Investors repriced the risk on Nigeria naira assets, driving the average yield on OMO bills and domestic bonds from 13.1% and 10.8% at the end of Dec-2019, to 15.1% and 11.9% respectively as at the end of March 2020.

However, in Q2-2020, the financial market rebounded sharply, as the yield curve moderated amid optimism in the global and domestic market economy.

Also, the equity market almost recovered to its pre-selloff level largely driven by domestic investors who took advantage of the market valuation amid a mild recovery in oil prices in the month of May 2020.

More specifically, the primary market segment witnessed a flurry of debt issuances over H1:2020 as commercial papers (CPs) worth N514.0bn alongside local currency bond of N156.5bn were floated by corporates to make the best of the low yield environment.

In H2-2020, we maintain that the fixed income space will remain a corporate issuers’ game due to the sustained low yield environment. However, we expect a mild uptick in the yield curve, amid slight adjustment in system liquidity from Q4:2020.

Overall, we expect the yield curve to remain normalized, with a marginal upward shift, as market forces move in favour of demand.

Source: United Capital Research