Global investors anticipate that the US Federal Reserve will continue raising interest rates, which caused the yield on the US 10-year treasury (US10Y) to cross the 5% threshold for the first time in 16 years.
Even after US Federal Reserve Chairman Jerome Powell recently indicated that the institution intended to keep interest rates constant, the US10Y yield still rose to 5.01%.
He insisted that, if there were inflation worries, the door was still open for a potential hike.
Powell said in a speech recently that;
“Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully.
“We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks.”
This increase suggests that investors are placing their money on the US Federal Reserve raising interest rates once more.
Adetola Freeman, the regional analyst for FBS Africa, responded to the circumstance by noting:
“Two likely outcomes; in normal market scenarios, we would expect a decline in economic output since it becomes more expensive for the government to borrow funds, leading to slower economic growth. Given the recent hostilities between several countries, demand for US-made weapons could mitigate the impact of the rising borrowing rates.
“The stock markets are the likely victim in all of this as some investors may seek to diversify their investments into the bonds market.” He added.
Points to note:
The bond market has been suffering adverse sentiments from the US to Nigeria. The benchmark rate for Nigerian Treasury Bills rose by 40 basis points to 6.92% recently on average.
Additionally, prices for mid- and long-term investments in the NT-bills market significantly declined for investors, while average yields rose by 11 basis points (bps) and 41 bps, respectively.
The bills due on 11-Apr-24, 12-Sep-24, and 26-Sep-24 saw the biggest increases, increasing by 44 bps, 93 bps, and 100 bps week-over-week.
NT-bills worth N108.13 billion split among the 91-, 182-, and 364-day instruments will be rolled over by the CBN on October 25, 2023, during the Primary Market Auction.