Yields Rise with Higher Inflation Expectations; Equities Take a Beating


The global economy continued to expand for the eighth consecutive month in February 2021 as output and new business orders continued to grow; notably, new export orders index rebounded to 50.2 points (from a contraction of 49.4 points) while input cost index spiked to 61.6 points (from 59.9 points).

This increased cost was partly borne by consumers as output price index rose to 54.0 from 53.5.

While global authorities sustained their accommodative monetary policy stance, as well as fiscal stimuli, the threat of inflation arising from such expansionary policies resulted in higher yields on government debt securities.

Nigeria’s real Gross Domestic Product expanded y-o-y by 0.11% to N19.55 trillion in Q4 2020 (or USD122.44 billion) as households and businesses to resumed economic activities amid economic stimulus packages provided by the monetary and fiscal authorities.

The non-oil sector rose y-o-y by 1.69%; however, the oil & gas sector fell y-o-y by 19.76% as average daily oil production fell quarter-on-quarter (q-o-q) by 6.6% to 1.56 million barrels per day (mbpd) amid production cuts imposed by Opec+.

Annual inflation rate continued to trek northwards, having risen to 16.47% in the month of January (from 15.75% recorded in December 2020).

The higher headline inflation was driven by a rise in food inflation to 20.57% (from 19.56% in December) as heightened insecurity and higher logistics cost impacted food prices.

Also, core inflation rose to 11.83% (from 11.37% in December) amid rise in costs of passenger transport, medical & hospital services and pharmaceutical products amongst others.

Meanwhile, the Monetary authority appeared aggressive in its effort to manage liquidity amid the rising threat of inflation by selling short term government securities at higher stop rates.

The normal yield curve at the end of February was higher than the yield curve as at the end of January, – especially the 30-year maturity – amid sell offs as investors sought for higher yields and as stop rates at the primary market became more attractive.

The Nigerian equities market was generally bearish in February amid profit taking activity. This was against the backdrop of the rising yield environment.

The NSE ASI and market capitalization each flagged m-o-m by 6% to 39,799.89 points and N20.82 trillion respectively.

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