Yield Dips over Rapid Bond Buying Ahead of Auction
With expectation of a slowdown in bond supply, investors ramped up the Federal Government of Nigeria (FGN) in the secondary market ahead of the auction on Monday.
Today, the Debt Management Office (DMO) will conduct its monthly primary market auction, where the authority will sell reopened local bonds worth N150 billion across standard maturities.
DMO will re-opened 19.30% FGN bond, APR 2029 FGN bond, 18.50% FGN FEB 2031 and 19.89% FGN MAY 2033 bonds at the auction. Analysts recalled that the local bond market started the previous week quietly.
Later on, there was demand for specific papers due to coupon payments for certain bonds, but overall, the market sentiment was mixed. Offers improved towards the close of the market as market players positioned themselves ahead of the upcoming FGN bond auction.
Ahead of the auction in the week, investors’ sentiment was bullish on government debt instrument at the over the counter market last week.
According to Cordros Capital Limited, the bond market ended last week on a bullish note because investors reinvested coupon payments. Fixed interest securities traders also said in their separate market update that the average yield on FGN Bond declined by 19 basis points to close at 18.7% on Friday.
Across the benchmark curve, analysts said the average yield declined at the short (-27 bps) and long (-2 bps) segments. The yield contraction followed demand for the APR-2029 (-143bps) and JUN-2053 (-20bps) bonds, respectively.
Meanwhile, yield advanced at the mid (+2 bps) end; driven by profit-taking activities on the JUN-2033 (+38 bps) bond.
“..We believe the direction of yields in the secondary market will be shaped by the outcome of this month’s FGN bond auction holding on Monday,” analysts said.
Cordros Capital Limited maintains medium-term expectations of elevated yields consequent to anticipated monetary policy administration globally and domestically and sustained imbalances in the demand and supply dynamics.
