FGN Eurobond Sees Attractive Yield, Nearing 9%
Federal Government of Nigeria (FGN) Eurobond see an attractive yield nearing 9% at the just concluded week, according to analysts’ market report. The value of FGN Eurobond traded at the international capital market appreciated for all maturities tracked on renewed buying interest, Cowry Asset said in a market report.
According to analysts note, the 10-year, 6.375% JUL 12, 2023 bond, the 20-year, 7.69% FEB 23, 2038 paper and the 30-year, 7.62% NOV 28, 2047 debt see increased demand in the Eurobond market in the just concluded week.
However, in the domestic fixed income market, the value of FGN local bonds moved in mixed directions across maturities tracked, Cowry Asset said, perhaps due to noticeable adjustments in the financial markets.
Specifically, the 10-year 13.98% FGN MAR 2028 debt and the 10-year 16.29% FGN MAR 2027 bond prices gained N0.32 and N0.54 respectively due to higher demand as investors’ confidence in the Nigerian economy weakened.
According to analysts note, their corresponding yields fell to 11.76% (from 11.85%) and 11.86% (from 11.98%) respectively amid buying pressure.
However, the 5-year, 13.53% FGN APR 2025 paper and the 20-year 16.25% FGN MAR 2037 paper moderated by N3.01 and N0.58; their corresponding yields rose to 10.61% (from 9.60%) and 13.06% (from 12.99%) amid sell-offs.
Analysts explained to MarketForces Africa that a rising yield indicates falling demand for bonds, which means investors prefer higher-risk, higher-reward investments while a falling yield suggests the opposite.
“Bond prices and yields move in opposite directions—falling prices boost yields while rising prices lower yields”, analysts highlighted.
Recall, the equity space lost its allures as investors closed the just concluded week poorer while negative returns in the fixed income market persist but NASD OTC records just moderate gain while Naira asset continues to weigh less.
However, the value of FGN Eurobond traded at the international capital market appreciated for all maturities tracked on renewed buy interest; the 10-year, 6.375% JUL 12, 2023 bond, the 20-year, 7.69% FEB 23, 2038 paper and the 30-year, 7.62% NOV 28, 2047 debt, according to Cowry Asset.
Analysts note shows that these bond instruments gained $0.03, $1.37 and $1.86 respectively with their corresponding yields at 4.61% (from 4.65%), 8.70% (from 8.87%) and 8.76% (from 8.96%) respectively.
In the new week, Cowry Asset analysts said they expect the value of FGN Eurobonds to rise (and yields to decrease) as rates in this space appear very attractive at close to 9%.
What does yield movement mean?
When confidence is high, prices for the 10-year government bonds drop and yields rise. This happened when investors feel they can find higher-returning investments elsewhere and do not feel they need to play it safe in the fixed income market.
Between October 2021 and November 2021, the secondary market yields in the fixed income market rose by an average of 20 basis points and 7 basis points at the short segment and mid-segment, respectively of the yield curve, WSTC Securities analysts noted in the monthly report.
The average yields on a longer-tenor segment of the market declined by 6 basis points, according to analysts note.
As of the end of November 2021, the average yield on 1- year government instruments stood at 6.98%; the average yield on 5-year government instruments stood at 11.53%; while the average yield on 10-year government instruments stood at 12.18%.
In the primary market, analysts note indicated that the yield on 364-day Nigerian Treasury Bills (NTB) closed October 2021 at 7.82%, representing a decline from a recorded 8.11% yield it closed at in September 2021.
In November 2021, the yield further moderated to 6.26%. We attribute the general trend of declining yields to improved fundamentals of the economy.
Analysts said the disinflationary trend in the economy makes the economy less risky, noting that a combination of these factors accounted for the declining trend of yields in the fixed income market. #FGN Eurobond Sees Attractive Yield, Nearing 9%
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