Investors Trim Nigerian Bond Holdings Over Shrinking Rates
The average yield on Nigerian government bonds increased slightly as fixed-income investors trimmed their holdings of the debt papers in the secondary market.
A bearish stance on local bonds was more pronounced despite surplus liquidity in the financial system, suggesting that investors refrained from active trading due to weaker annual returns.
Spot rates on local bonds fell at the bond auction following a disinflationary stance that markets expect to persist into the second half of 2026.
The slowdown in the headline inflation rate to 15.43% widened real returns on naira assets across the debt capital market. The expectation that the consumer price index would continue to decline also allowed the Debt Management Office to cut bond rates.
The market interprets the lower spot rate at the August primary market auction as an effort by the Nigerian government to reduce its debt service costs by repricing local borrowing rates.
Last week, traders saw weak investor demand across key maturities as Nigerian Treasury bills continued to draw investor attention, in contrast to subdued sentiment amid tight pricing in local bonds.
The subdued buying interest led to bond price depreciation and a corresponding rise in yields, reflecting cautious investor sentiment toward domestic fixed-income instruments.
Investment firms reported that bullish sentiment crept in during the week, with some selective buying in the secondary market across longer durations.
Demand picked up midweek into Thursday, following positive sentiment at the Treasury Bills auction, driving buying interest across short- and mid-curve papers.
The market recorded demand for Nigerian government bonds maturing in 2028, 2029, 2032, and 2037, AIICO Capital Limited revealed in its investors’ note.
Activity remained muted at the long end while investors cherry-picked attractive yields. Consequently, the average FGN bond yield increased by 2 basis points week-on-week to close at 16.87%.
“We expect the domestic bond market to remain cautious in the near term, with yields likely to stay elevated amid subdued demand and prevailing liquidity conditions”, AIICO said.
DMO Cuts Nigerian Government Bond Rates as Real Return Widens
