Yield Rises as Investors Trim Bonds Holding Ahead of Inflation
The average yield on Nigerian government bonds climbed by three basis points in the secondary market to close at 18.46%, traders said in separate updates.
Investors ramped up bonds ahead of inflation data set for February. Most of the investors’ activity was observed at the mid-segment (+8bps) of the curve, particularly on the FEB-31 (+39bps), JUL-30 (+27bps), and NOV-29 (+13bps) papers, CardinalStone said in a note.
Trading activities were subdued, marked by weak demand and a liquidity squeeze that pressured mid-tenor bonds. During early trading session, sell pressure dominated, leading to limited execution on February 2031 and May 2033 papers.
As the week progressed, market sentiment remained cautious, with limited trades on February 2031, May 2033, and February 2034 bonds.
Midweek, improved offers emerged on the April 2029, February 2031, and May 2033 bonds, but wide bid-offer spreads restricted transactions, keeping yields stable, according to AIICO Capital Limited.
At the close of session on Friday, the bond market remained quiet with few trades executed. Overall, the average mid-yield across the curve inched higher, traders said.
Across the benchmark curve, the average yield increased at the short (+4bps) and mid (+12bps) segments following selloffs of the JUL-2030 (+33bps) and FEB-2031 (+12bps) bonds, respectively. The average yield closed flat at the long end.
Analysts anticipate a decline in yields driven by expectations of reinvestment of coupon inflows. Over the medium term, analysts at Cordros Capital Limited said they still expect a moderation in yields consequent on the anticipated monetary policy administration and demand and supply dynamics.
Headline inflation is projected to decline further in February following rebasing exercise. Inflation dropped to 24.48% year on-year in January, down from 34.80% in December 2024.
This decline, the first significant reduction in months, was driven by the rebasing of the Consumer Price Index (CPI) to reflect 2024 as the base year, alongside updated weights for goods and services.
Investors’ positive sentiment over Nigeria economic growth potential continue boost appetite in the bond market. Nigeria’s GDP expanded by 3.84% in Q4 2024, up from 3.46% in Q4 2023, with full-year growth reaching 3.40%—the fastest in three years.
Analysts said while inflation easing and GDP growth are positive, challenges persist, including currency volatility, weak manufacturing, and high living costs. The effectiveness of government policies, such as the Central Bank’s monetary tightening and fiscal reforms, will be crucial in sustaining this momentum. #Yield Rises as Investors Trim Bonds Holding Ahead of Inflation#
