9-Year Bond Yield Spikes on Selloffs as DMO Cuts Rates
Benchmark yields on Nigerian government bond spiked in the secondary market as fixed interest securities investors trimmed their portfolio holdings. Investors reacted negatively to the downward spot rate adjustment on new papers at the primary market auction for the month.
Investors are still anticipating higher yields on government bonds due to recent increase in benchmark interest rate. However, yields have remained subdued as the authority seeks to reduce borrowing cost from domestic market.
According to fixed income analysts, 9-year government bonds witnessed the most selloffs in the secondary market as risk sentiment clouded buying interest across the curve.
Yield on 9-Year FGN bond crossed 21% as investors took profit. Subsequently, the average yield inched higher by 8 basis points to settle at 18.7%, according to Cordros Capital Limited.
The market attributed uptick yield adjustment to recent 50 basis points increase in monetary policy rate. Across the benchmark curve, the average yield expanded at the short (+22bps), mid (+12bps) and long (+5bps) segments.
Investment analysts noted that investors sold off the MAR-2025 (+102bps), FEB-2031 (+38bps) and MAR-2050 (+45bps) bonds, respectively.
Last week, Debt Management Office (DMO) conducted its monthly bond auction told investors, notably banks, pension fund administrators and other market participants.
At the auction, the debt office reopened bond papers worth ₦150 billion, offered a 5-year bond worth N70 billion, 9-year FGN bond worth N50 billion and 9- year bond worth N30 billion.
However, the bid-to-cover ratio dampened to 1.05x from 1.23x in August with a total subscription of ₦414.9 billion while DMO allotted ₦395.1 billion worth of bonds to investors.
Auction results showed that the spot rate on the 5-year bond declined to 19% from 20.3% at the previous auction. Spot rate on FEB 2033 bond plunged to 19.9% from 20.19%, while spot rate for MAY 2033 FGN bond fell to 20% from 21.50% in August.
Analysts anticipate local participants in the bonds secondary market to continue to reprice yields higher to reflect the elevated benchmark interest rate.
In the medium term, Cordros Capital Limited maintains expectation of elevated yields consequent to anticipated monetary policy administration globally and domestically, and sustained imbalances in the demand and supply dynamics. #9-Year Bond Yield Spikes on Selloffs as DMO Cuts Spot Rates NGX Gains Weight as Investors Wealth Rises by N120bn
