Analysts at Cordros Capital Limited have said yields on Treasury bills and bonds are expected to decline by about 100 to 150 basis points.
The Head of Research, Cordros Capital, Jolomi Odonghanro, while speaking during the unveiling of the 2020 market outlook in Lagos, said they expected the fixed income market to be quite volatile in the year as the market forces pressured yields throughout the year.
He said activities in the fixed Income market would decline significantly as Foreign Portfolio Investors would be wary of liquidity and potential for trading gains.
According to him, significant capital flow reversals are not expected despite the likely decline in yields in the bonds and T-bills market.
Odongharo said, “In line with expectations at the start of 2019, the fixed income market was quite volatile as a variety of factors affected trading.
“The Central Bank of Nigeria policies introduced in the second half of 2019 acted to materially affect trading in the market, and consequently yields. Importantly, the CBN introduced policy to segment T-bills market, excluding domestic corporates and individuals from purchasing Open Market Operation bills
“Consequently, average yields on T-Bills and bonds declined by 4.6 per cent and five per cent to 7.6 per cent and 10.8 per cent respectively by December 31, 2019.”
Odongharo stated that to boost the fixed income market, capital appreciation opportunities need to be offered on high modified duration bonds.
He said there should also be an increase in corporate issuance of bonds as they offered opportunity above market levels.
In the equities market, Odongharo said with no respite to global trade tension, inflows to emerging and frontier market equities were expected to remain weak.
According to him, market-friendly reforms are lacking in the Nigerian capital market.
He advised investors to build strategic exposure to equities through the year, but also target dividend season and buy with a long-term view as short-term expectations remained bleak.
The Chief Economic Officer, Cordros Capital, Wahab Mustapha, said he expected an increased participation in the equities market this year due to the low yield in the fixed income market.
He said, “We expect investors to take more position in equities, while there is also the probability of an expansion in fixed income securities.
“We also predict that banks would do more naira debt securities due to the upcoming CBN recapitalisation.”
Mustapha described an expansion in the derivatives market as a very positive development for the market.
