High Eurobond Yields Drive Selloffs in Local Bonds Market, Traders Forecast
Amidst a higher demand for return on naira assets investment in the fixed income market, investment analysts have projected that a high yield on Eurobonds would force investors to sell Federal Government of Nigeria (FGN) bonds trading in the local market.
The move will see the yield on government instruments rising this week after thin trading witnessed in the market amidst tight liquidity, traders projected. MarketForces Africa reported that at the primary market auction conducted by Debt Management Office last week, demand improved.
Auction results showed that Nigeria’s debt office offered N225.00 billion through reopening: N75.00 billion for the 13.53% FGN MAR 2025, and N75.00 billion for the 12.50% FGN APR 2032, and N75.00 billion for the 13.00% FGN JAN 2042.
At the auction, the subscription level settled at N247.07 billion, translating to a bid-to-offer ratio of 1.1x as against a bid-to-offer of 0.6x in the previous auction, according to DMO. At the auction, Nigeria’s debt office allotted instruments worth N196.57 billion, resulting in a bid-to-cover ratio of 1.3x.
Stop rates for 2025 FGN Bonds printed at 12.50%, while 2032 was sold at marginal rates of 13.50% and 2042 FGN Bonds was priced at 14.00%, respectively. In a market note, Cowry Asset Management Limited said given the fixed stop rate, the secondary market lacked direction, resulting in a flattish movement in the value of FGN bonds traded over the majority of maturities tracked.
The 10-year 16.29% FGN MAR 2027 paper, 15-year 12.50% FGN MAR 2035 bond, and 20-year 16.25% FGN MAR 2037 bond yields, in particular, traded around 12.71%, 13.13%, and 13.46%, respectively.
The 30-year 12.98% FGN MAR 2050 instrument lost N2.41 with its corresponding yield rising to 13.75% (from 13.40%). Meanwhile, the value of FGN Eurobonds traded at the international capital market depreciated for all maturities on bearish sentiment.
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 each lost $1.88, $7.64 and $8.75 respectively. These instruments corresponding yields rose to 9.63% (from 7.35%), 12.77% (from 11.32%) and 12.50% (from 10.97%) respectively.
In the new week, Cowry Assets analysts said they expect to see increased bearish activity in the local FGN bonds space as FGN Eurobonds yields appear to be relatively high. READ: Bond, T-Bills See Yields Rising, FGN Eurobond Falls
FGN bonds secondary market continued in the bearish territory as investors re-priced bonds in reaction to a strong spike in headline inflation from 18.60% to 19.64%. As a result, the average yield across all instruments expanded by 13 basis points to 12.8%.
Across the benchmark curve, Cordros Capital said in a market note said the average yield increased at the short (+8bps), mid (+8bps), and long (+18bps) ends. Fixed income investors sold off the JAN-2026 (+44bps), NOV-2029 (+13bps), and MAR-2050 (+35bps) bonds, respectively.
“We maintain our stance of an uptick in yields in the medium term as the FGN’s borrowing plan for 2022 and expected fiscal deficit point towards an elevated supply level over the rest of the year”, Cordros Capital said in its market note. #High Eurobond Yields Drive Selloffs in Local Bonds Market, Traders Forecast
