Bear Curve Flattening Underway, Public Debt Rises In Q1 2022 And Corporate Tax Collections Accelerate To 7-Year Highs.

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Mixed trends along the curve as short-term rates rise while long-dated bonds recline; The divergent trends along the Naira yield curve continued last week;  short-dated Nigerian T-bill (NTB) yields continued to trend higher (Avg: +16bps w/w) while bond yields declined over the week with the long end down some 5-10bps. Liquidity conditions were relatively adequate with lower bank borrowing from the CBN discount window (daily average: -86% w/w to NGN1.6billion). That said interbank rates jumped on the Friday (+600bps to 14%) driven by some outflows for FX auction settlements.

At the NTB auction on Wednesday, the CBN (on behalf of the DMO) responded to relatively stronger demand. With bid-cover at 2.1x (last 1.6x), by selling NGN183billion worth of short-term debt relative to its target NGN174billion. Interestingly, the apex bank lowered the stop-rate on the 12-month tenor to 6.44% (last 6.49%) which in the light of the May 2022; rate hike lends credence to the argument that tightening decision was largely symbolic. Indeed, actual CBN behaviour across other fixed income instruments suggests any change at all; rates on the 12-month OMO yields remain at 10% and the recent 3m Special Bill maturities were rolled over at 0.5%

In line with the global trends, Nigeria’s inflation likely quickened further over May likely fueled by the continued spiral in diesel prices (+22% m/m) and Naira depreciation at the parallel market. Diesel is the main fuel in inter-state transport of food items. And the pass-through effects are likely to have underpinned an acceleration in headline inflation to between 17.75-17.85% y/y on my numbers.


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