Bond Market Repriced Yields after Spot Rates Hike
Trading activity in the secondary market for FGN bond stayed on a calmer note, causing the average yield to clip at 19.44%. With a widening inflation rate, the negative real return on Nigerian bond investment has increased to about 7%.
This exposed portfolio returns to damaging effects on higher consumer price index and naira fluctuation.
Inflation accelerated faster than analysts’ expectations to 33.88% in October after the monetary policy authority hiked the benchmark interest rate to 27.25%, leaving the negative real return at 6.63 percentage points.
There was a reaction in the latest bond auction as the authority deviated from its usual tight fist on spot rates. On Tuesday, some fixed income market traders revealed in their respective notes that the local bond market posted some activities with some sell side actions on April 2029 and February 2031 bonds.
Across the benchmark curve, the average yield expanded at the short (+1bp) end due to profit-taking activities on the MAR-2025 (+3bps) bond but remained unchanged at the mid and long segments.
The market sentiment primarily leaned towards the bearish side as investors continued to respond to the recent FGN bond auction results, AIICO Capital Limited said in a note.
At its monthly bond auction for November, the Debt Management Office hiked spot rates by 25 bps and 26 bps, respectively, for those bonds. Fixed income market analysts said there was stable interest in the 2050 and 2053 FGN bonds above 17.00%.
The market exhibited mild bearish sentiment as participants’ repriced yields higher at the short and mid-region of the yield curve to align with the rate hike at the recent auction.
On the day, the bond auction notes notably 2029 and 2031 FGN bonds yields, advanced to settle at 20.80% and 21.80%, respectively, traders said. #Bond Market Repriced Yields after Spot Rates Hike Naira Plummets to N1690/$ after CBN Priced Spot Rate High
