Nigerian Bonds Rally as Tax Exclusion Boosts Investors’ Appetite
Trading activity on Nigerian government was subdued in the secondary market, though with mildly bullish sentiments at the short (-1bp) end of the curve. Federal tax authority’s deliberate exclusion of local bonds from withholding tax lifted investors’ appetite on Thursday.
Investors rotate back into local bonds after previous sell pressures in reaction to downward spot rate adjustments at the Debt Office Auction for October.
The benchmark bonds yield came behind headline inflation which printed at 18.02% for Sept, with real interest rate of about 9%. Broadstreet investment analysts anticipate inflation to continue downward trend in 2025, and the Central Bank of Nigeria is expected to maintain expansionary policy to drive economic growth.
In anticipation of a new market dynamic, investors repositioned in the naira assets, albeit, with utmost caution. As a result of the bargain hunting, the average yield contracted by 1bp to 15.91%, reflecting sustained investor demand and constructive positioning in domestic sovereign fixed-income securities.
Trading activities concentrated at the short- to mid-maturities. Notably, 2029s papers increased by 5bps to 16.09%, while the 2033s and 2034 papers climbed 9bps and 11bps, settling at 15.78% and 15.72%, respectively.
Conversely, the 2031 fell 13 bps to 15.95%. Overall, the average benchmark yield inched up 2 bps to 15.94%. Outlook: We expect sustained similar sentiment from investors in the near term.
The Federal Inland Revenue Service (FIRS) has ordered banks, stockbrokers, and other financial institutions to deduct a 10% WHT on interest income earned from short-term securities such as treasury bills, promissory notes, and corporate bonds.
The directive, initially issued last month, emphasises that noncompliance will attract penalties and interest charges under existing tax laws.
Under this framework, the tax will be deducted at the point of payment, meaning investors will receive returns net of withholding tax. FG to Position Nigerian Ports Among Top 3 in Africa
