How Nigeria's interest rate is impacting commercial papers, bond issuances

Guardian Nigeria

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00:00A report by the FMDQ shows that the number of commercial papers issued in 2024 dropped

00:06by 5% to 133 from 140 in 2023.

00:11The amount issued by corporates also dropped by 12.2% to 790 billion naira.

00:17Similarly, corporate bonds issuances became costlier as about 1.2 billion naira was raised,

00:23a 98.8% drop from 2023.

00:27What's the market sentiment so far this year?

00:29Ege Akpata, the chairman of Skymark Partners, joins me for this discussion.

00:33Ege, thank you for joining us today.

00:35Let's get right to it.

00:36A new amended Treasury Bill's auction calendar has just been released.

00:42But before we talk about that, I want you to help us understand yesterday's Treasury

00:46Bill auction on the one-year paper, particularly, and why we saw a rise on this particular note.

00:53Good afternoon, Esther.

00:56The auction yesterday was the first time we had had five consecutive auctions this

01:02year with dropping rates.

01:04I mean, the yield this year has dropped almost 7% from the first auction of the year.

01:10So the last auction yesterday was the first time the yields were going up from 17.82 discounts

01:17to, I think, 18.39.

01:18Part of the problem was that you had auctions in consecutive weeks.

01:25You normally have auctions every two weeks, so this is one of the few times you have auctions

01:29in consecutive weeks.

01:30And apart from that, they were borrowing again in this auction compared to repaying in the

01:35past three.

01:36So when you combine the two, there was quite a lot of supply coming into the markets in

01:40a short period, and that made the rates go back up.

01:45Right.

01:47So let's talk now about the Treasury Bill's auction calendar for the first quarter of

01:52this year.

01:53It's been amended.

01:54Can you help us understand why this amendment was made and how the market has been reacting

01:58to it?

01:59Yes.

02:00So today we saw a new auction that was not in the quarterly calendar for $800 billion

02:08next week.

02:09It's extremely unusual to have the quarterly CBO calendar amended, and it's even more unusual

02:18to amend it near the end of the quarter.

02:20So it makes it very difficult for investors to plan because there's this new supply of

02:26$800 billion that was really not on the cards as of yesterday.

02:31In terms of the impact on the markets, naturally, this new supply is spooking the markets and

02:37yields are moving up in both the bond and the CBO markets, and it's pretty much assured

02:42that that auction next week, the rates will be higher than the auction of yesterday.

02:48And I'll not be surprised if you cross 19% this coming week.

02:51Right.

02:52Let's talk about the commercial paper market and the corporate bond market.

02:58We've seen, we appear to be seeing the commercial paper market picking up compared to what we

03:04saw last year.

03:06Help us understand how much has been raised so far this year, and also for the corporate

03:10bond market, not much happening there.

03:12Help us understand why it's still quiet.

03:15Well, in terms of the T-bill markets, it's kind of come back to life, driven heavily

03:22by the drop in the, sorry, the CBO market has been driven heavily by the drop in T-bill

03:27rates.

03:28As I said, the one-year yield has dropped almost 7% from the first auction of the year

03:34to the low of the auction on March, sorry, end of February.

03:41And that has given an opportunity for corporate issuers to raise money at much lower rates

03:46than they could last year, and also gives investors a chance to still get decent yields,

03:54better than what the T-bill market is now giving.

03:56Part of the issue with the corporate bond market is the concept of the inverted yield

04:02curve.

04:03Short-term, one-year instruments pay a lot more than long-term instruments.

04:08If you look at the federal government bond markets, your seven-year bond is about 19%

04:14plus, whereas your one-year T-bill is about 22% or slightly higher yield.

04:19So most investors would rather take one year at higher rates than lock into longer-term

04:25instruments.

04:26And so because of that, you don't really have a very deep market for the corporate bond

04:30markets, mainly pension funds.

04:31And so if you look at last year, corporate bond issuance was only about 107 billion for

04:37the entire year, which is a lot less than 2023.

04:43All right, Iggy, we're going to have to leave it there.

04:44Thank you so much for talking to us today.

04:46We appreciate your time on the show.

04:47Iggy Akpata, Chairman of Skymark Partners.

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