Investors in Bond Market Reacts as Inflation Runs Hot
The average yield on Nigerian local bond increased slightly as market reacted to inflation rate surge. The statistics office announced that inflation rate climbed to 34.19% in June, up by 24 basis points from 33.95% recorded in May.
Analysts said widening inflation has now reduced gap between consumer price index and monetary policy rate to 7.94%. Real return on investors’ portfolio in the fixed income market has remained subdued.
The market has continually in search for inflation protected investment options but lack of alternative and regulatory demand that pension fund administrator must invest in government securities reduced rates pricing negotiation to a greater extent.
With more than N20 trillion in pension assets, investment in FGN securities accounted for more than 63% as of May, 2024 – reducing the value of return to pensioners.
The rising inflation surge triggered bonds selloffs in the secondary market, with yield curve shifting upward ahead of reschedule primary market auction.
The Debt Management Office notified the market about its decision to shifted July bond auction. In a notice, the DMO said it has rescheduled the FGN bond auction from July 15 to July 22.
“Due to unforeseen recent developments, the Debt Management Office is constrained to shift its July 2024 Federal Government of Nigeria (FGN) Bond Auction, earlier scheduled for July 15, 2024, to July 22, 2024”, the notice said.
At the beginning of the week, traders reported that trading activity in the secondary FGN Bonds recorded negative activity, resulting in a 0.03% increase in the average yield to 19.29%.
Across the benchmark curve, the average yield increased at the short (+15bps) end, as investors sold off the MAR-2025 (+70bps) bond but was unchanged at the mid and long segments, according to Cordros Capital Limited. NHIA Surpasses Target, Covers 18.7m Nigerians in Q2 2024 – DG
