Benchmark Yield Slumps as FGN Bond Buying Intensify
The average benchmark yield on Federal Government of Nigeria (FGN) bonds declined as proceedings in the secondary market ended on a bullish note last week. Strong appetite for low-risk naira assets pushed demand upward despite negative yield in the local debt capital market.
Though the benchmark interest rate has increased by 700 basis points since April 2022, yield repricing remained tight while headline inflation maintained upward momentum. The statistics office reported inflation rate rose to 22.41% in May, and analysts estimate a further surge in the third quarter of the year due to subsidy removals and food inflation – in particular.
Overall, the Nigerian government has been paying below market rates to support its revenue gaps. At the same time, the Central Bank of Nigeria crashed rates on Nigerian Treasury bills, thus reducing its costs of funds. Last week, the secondary market witnessed a notable strengthening of demand in the FGN bond market, with investors showing increased interest across all tenors, Futureview Financial Service told investors in a note.
The investment firm told investors that the growing appetite for long-term instruments intensified, leading to heightened competitiveness in bond prices. As a result, the average benchmark yield experienced a significant decline of 5.19%, settling at a favourable rate of 13.16% for the week. MarketForces Africa reported that the inflation rate has reduced the real return on investors in the fixed income market.
Due to government regulation, Pension Fund Administrators (PFAs) continue to settle for negative interest rates in the fixed income market, exposing pension assets to downside risks of naira devaluation as well as consumer inflation pressures. As a result of bargain hunting on naira-denominated fixed interest securities assets, prices of FGN Bonds increased as traders’ bids were filled at lower yields for most of the maturities tracked.
The 10-year, 16.29% FGN MAR 2027 bond, 20-year, 16.25% FGN APR 2037 paper, and 30-year, 12.98% FGN MAR 2050 bonds gained N1.52, N6.81, and N1.64, respectively, according to Cowry Asset Management Limited. Consequently, the FGN bond at the long end of the curve saw their corresponding yields decline to 10.91% (from 11.39%), 14.25% (from 15.35%), and 14.69% (from 14.97%), respectively.
However, the 15-year, 12.50% FGN MAR 2035, held steady at 14.40% as of Friday’s close, the investment firm told investors in its market update. Analysts at Cordros Capital said in a note that across the benchmark curve, the average yield dipped at the short (-83bps), mid (-122bps), and long (-43bps) segments.
The decline followed bargain hunting in the MAR-2025 (-161bps), NOV-2028 (-148bps) and JUN-2053 (-97bps) bonds, respectively. Elsewhere, traders said FGN Eurobonds traded on the international market appreciated across all maturities, driven by increased global risk appetite.
Notably, the 20-year, 7.69% FEB 23 2038, and the 30-year, 7.62% NOV 28 2047 recorded gains of USD 0.29 and USD 0.47, respectively. The FGN Eurobond note saw a decline in their corresponding yields, falling to 11.28% (from 11.33%) and 11.11% (from 11.19%), respectively.
“We retain our view that frontloading of significant borrowings for the year by the FG will result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply”, Cordros Capital said in its update. Nigerian Treasury Bills Yield Rises to 7%
