Nigerian bond yields could rise at the primary auction next week amid tight liquidity, while a steep rise in overnight interbank lending rates could subdue subscription rates on Kenya's Treasury bills.
NIGERIA
Nigerian bond yields are seen slightly higher at the primary auction next week amid tight liquidity in the Africa's top economy banking system after central bank directed commercial banks to pay for their dollar purchases 48 hours in advance.
Traders said tight liquidity is forcing some banks to sell-off their bond holdings to make provision for dollar purchases at the central bank's forex intervention, pushing up yields at the secondary market.
"Many investors are cutting short their long positions in the market cash shortage and this has push yields up above the 15 percent level," one dealer said.
Nigeria plans to issue 70 billion naira ($350 million) worth of Treasury bonds with maturities ranging between five and 20 years at an auction next week.
Traders said they expect a returns of around 15.50 percent at the auction in tandem with the range at the secondary market.
Nigeria's central bank has directed commercial banks to pay for their dollar purchases 48 hours in advance, after banning them from accepting foreign currency cash deposits to curb dollar demand and stem illicit financial flows.
The resultant cash shortage has pushed up interest rates on the interbank market, with overnight rate at 100 percent at 1020GMT.
Yields rose sharply on the longest tenor 2034 debt, up to 15.12 percent from 14.32 percent last week.
The benchmark 2024 paper rose to 15.31 percent against 14.85 percent, while the 2022 debt was trading around 15.37 percent from 14.80 percent.
KENYA
A steep rise in overnight interbank lending rates and the central bank's high-yielding term auction deposits (TAD) are expected to help keep down subscription rates on Kenya's Treasury bills.
The central bank has capped the weighted average yield on its 14-day, 21-day and 28-day term auction deposits - used to manage liquidity in the money markets - at 14 percent.
"Most of the market players, like the banks, are able to price on the TADs at 14 percent. So until the rate reaches around those levels, that's when they will start to attract some more investors," said John Njenga, trader at Commercial Bank of Africa.
"The overnight market remains elevated to about 20, while T-bills are between 11 and 13. So there's not much attraction," he said, adding the rates are expected to rise slowly.
Next week the central bank will auction 91-day, 182-day and 364-day Treasury bills worth a total 11 billion shillings ($109 million).
At this week's sale, the yield on the 91-day bill rose to 11.570 percent at auction on Thursday from 11.539 percent last week.
The weighted average yield on Kenya's 182-day Treasury bill fell to 11.828 percent at auction on Wednesday from 11.929 percent last week, while the yield on the 364-day bill fell to 13.133 percent from 13.500 percent last week.