Yield Inched Higher as Investors Sell FGN Bonds

Yield Inched Higher as Investors Sell FGN Bonds

In the debt market, the average yield on the Federal Government of Nigeria (FGN) bonds inched higher a basis point amidst selloffs by bondholders. Following December 2021 headline inflation rate pressures, the real return on fixed securities instruments has dropped.

However, the market participants continue to await catalysts to drive yield repricing – a similar trend experienced in the first half of 2021, driven by large government issuance to finance the budget deficit.

But there has been decline in spot rates on Treasury bills at the primary market auctions conducted by the Central Bank, though Debt Management Office revealed a plan to borrow N480 billion in the first quarter of 2022 from the debt capital market.

In the money market segment, the average interbank rate spiked from lower single-digit seen in the market yesterday as the financial system liquidity strained due to funding requirements.

The overnight rate increased by 12.25 per cent to close at 13.25 per cent as against the last close of 1.00 per cent, according to FMDQ Exchange trading data. The Open Repo rate also increased by 12.25 per cent to close at 13.00 per cent compared to 0.75 per cent on the previous day.

Money market rates increased by an average of 1225 basis points on Friday following the foreign exchange (FX) retail auction by the Central Bank, analysts noted. Today, trading activities in the Nigerian Treasury Bills secondary market closed on a flat note with the average yield across the curve remaining unchanged at 4.53 per cent.

Some fixed income traders reported that average yields across short-term, medium-term, and long-term maturities remained unchanged at 3.52 per cent, 4.05 per cent, and 5.40 per cent, respectively.

In the OMO bills market, the average yield across the curve closed flat at 5.68 per cent, according to a note from FSDH Capital. Analysts hint that the average yields across short-term and long-term maturities remained unchanged at 5.42 per cent and 5.81 per cent, respectively.

Amidst cautious trading pattern in the fixed income market segment, FGN bonds secondary market closed on a mild, albeit with bullish. Market data and fixed income traders note obtained by MarketForces Africa show that average bond yield across the curve cleared higher by 1 basis point to close at 11.54 percent from 11.53 percent on the previous day.

FSDH Capital said average yields across short tenor and long tenor of the curve expanded by three basis points and a basis point, respectively. However, the average yield across the medium tenor of the curve remained unchanged.

The 27-APR-2023 and 14-MAR-2024 maturity bonds witnessed mild buying interest with a decrease in the yield of 1 basis point each, while the 23-MAR-2025 maturity bond was the worst performer with an increase in the yield of 12 basis points, according to traders note.

Read: T-Bills Rate Inched Higher as Fixed Income Market Stays Quiet