Tuesday, June 15, 2021 / 12:38 PM / Ottoabasi
Abasiekong for WebTV / Header Image Credit: WebTV
Commercial Paper Issuance by Corporates will increase in the second half of the year 2021, as they take advantage of the low-yield environment to raise funds to support their operations and even achieve expansion of activities that should translate to value for the market. Mr. Oluseyi Akinbi, the Managing Director of Zedcap Partners, made this point while discussing the outlook for H2,2021 in Nigeria's bond, and fixed income market.
He said 2020 recorded huge patronage of the CP market as fixed income yields hovered around 1%, leading to the increased appetite of corporate firms for bond as they were a faster, cheaper and effective way of raising funds compared to equity Issues.
Reviewing 2020, Akinbi said Treasury bill yields plunged to a decade low of 0.03% while bond yields traded at 7%. In Q1,2021 the dynamics changed as bond yields moved up to 14% in primary auctions.
Some of the key developments that led to changes in the H1,2021 include; the 10 year US bond-yield reversal, large borrowing appetite of the Federal Government from the domestic market and the increase in commercial paper issuance because of low yields.
The bond trader also noted that the Federal Government would be busy during the period in the market, as it plans to leverage the domestic market for its planned borrowing to finance the supplementary budget of about N895.84bn.
According to him investors should expect a return to double-digit fixed income yields era, which means better returns compared to the previous years.
On monetary policy and its impact on the fixed income market, he said if Nigeria's growth numbers continue to improve in Q2,2021, the Central Bank of Nigeria (CBN) would resort to tightening the monetary policy rate (MPR).
With the fiscal policy authorities taking expansionary measures to stimulate economic growth, the capital market specialist tasked the CBN to correct the issue of market yields in the fixed income market.
Akinbi noted that the CBN had taken a demand-management approach to the foreign exchange market and noted that the adoption of the NAFEX rate quoted on FMDQ as the market index rate would lead to transparency and market liquidity.
He referred to the fact that the World Bank and International Monetary Fund (IMF) had previously called on the CBN to adopt a single exchange rate window, that would achieve predictability and increase foreign portfolio and direct investment inflows into the country.