Nigerian Bonds Yields Rise as Investors Begin to ‘Look Away’
The average yield on Nigerian government bonds climbed as fixed interest securities investors began to look away, reducing their holdings at the beginning of the new week. Return on the Nigerian government is gradually becoming unattractive, and some analysts think this could trigger massive selloffs from foreign investors who had converted dollars to naira for their portfolio building.
The sell down started last week after the Debt Management Office (DMO) main auction, where N80 billion in local bonds was offered for subscription. Supported by higher subscription records, the authority doubled down on its allotment, raising more than N185 billion but at lower spot rates across reopenings.
Investors’ sentiment, however, turned negative at the secondary market, causing yields to expand amidst disinflation, a lower supply of Nigerian government borrowing papers, and strong liquidity levels in the financial system.
The secondary bond market closed bearish on Monday, with average yield rising by 7 basis points (bps) to 16.46%, traders said in separate reports reviewed by MarketForces Research analysts. Selloffs were observed at the short (+13 bps) and mid-segments (+5 bps) of the yield curve, where investors sold off the APR-29 (-34 bps) and APR-32 (-42 bps) papers, respectively.
Significant upward repricing was observed in the FGN 2029, FGN 2032, and FGN 2034 papers, as yields advanced to 16.87%, 16.90%, and 16.74%, respectively. Conversely, the FGN 2034 defied the trend, with yield declining by 65 bps to 15.60%. Overall, the average benchmark yield rose due to sell-offs. Asset managers attention is shifting into the equity market as Nigerian stocks boom.
MarketForces Africa reported that the DMO conducted an FGN bond auction on Monday, offering N80.0bn, a drop from N100 billion offer size in prior auction. The DMO reopened 19.30% FGN APR 2029 (5-year) and 17.95% FGN JUN 2032 (7-year) instruments.
Total subscription stood at N300.67bn as against N602.86bn reported in the prior auction sales, resulting in a bid-to-offer ratio of 3.76x . The DMO allotted N185.93bn, translating to a bid-to-cover ratio of 1.62x. The marginal rate cleared at 15.69% and 15.90% for the 5-year and 7-year, respectively, notably below their respective coupon rates.
The drop in marginal rates compared to previous auctions may reflect strong demand dynamics in conjunction with deliberate rate management by the DMO based on their view that rates are trending lower, so borrowing will be cheaper in the near future.
Notably, the final allotment exceeded the initial offer, indicating the DMO was comfortable taking up more at prevailing rates. #Nigerian Bonds Yields Rise as Investors Begin to ‘Look Away’ BUA Cement Hits 52-Week High after Bumper Earnings
