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Analysts Expect Rates to Soften as DMO Holds Auction

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Analysts Expect Rates to Soften as DMO Holds Auction
DMO

Analysts Expect Rates to Soften as DMO Holds Auction

Despite negative interest rate offerings on Nigerian government bonds, demand has been relatively strong due to sizeable liquidity in the financial system. Pension Fund Administrators and other market players remained bullish despite the fact that Nigeria’s surging inflation surge has kept real return on naira assets negative.

Ahead of the Debt Management Office (DMO) Federal Government of Nigeria (FGN) bonds auction in the primary market, a slew of Broadstreet analysts have expressed a view that they expect further slowdown on spot rates.

DMO is expected to conduct FGN monthly bonds auction sales on August 14 where it would offer instruments worth N360.00 billion through re-openings of the 14.55% FGN APR 2029, 14.70% FGN JUN 2033, 15.45% FGN JUN 2038 and 15.70% FGN JUN 2053 bonds.

Market analysts’ expectation of lower rates was anchored on the previous pattern, the recent Treasury bill instrument price down, and robust liquidity in the financial system among others. 

In the FGN bonds secondary market last week, trading activities were again bearish as the average yield expanded by four basis points to close at 13.52%, according to traders at CardinalStone Limited.  

Notably, traders saw that there were selloffs along the short (+10bps) and mid (+3bps) ends of the curve, as investors offloaded the FEB-28 (+56bps) and NOV-28 (+19bps) papers. Across the benchmark curve, analysts said the average yield expanded at the short (+32bps), mid (+22bps), and long (+15bps) segments. 

The increased yield was driven by investors decision to sell off the MAR-2025 (+107bps), APR-2032 (+37bps) and JAN-2042 (+47bps) bonds, respectively. In the last seven months, Nigeria’s debt agency has raised more than N4 trillion, beating its prorated target as a result of frontloading of the local borrowings. 

Some analysts said yields in the FGN bond secondary market will remain elevated in the medium term, driven by an expectation of a sustained imbalance in the demand and supply dynamics.

In its market update, Cowry Asset Management told investors that the 20-year, 16.25% FGN APR 2037 and the 30-year, 12.98% FGN MAR 2050 bonds incurred losses of N1.88 and N0.35, respectively.

The selloffs lifted yields on these instruments. It was noted that the yield on 20-year FGN Bond rose 30 basis points to 14.90%. Likewise, yield on a 30-year FGN bond inched up by seven basis points to 15.12%.

Meanwhile, the 10-year, 16.29% FGN MAR 2027 bonds, and the 15-year, 12.50% FGN MAR 2035 paper remained stable at 12.52% and 14.00%, respectively. #Analysts Expect Rates to Soften as DMO Holds Auction Treasury Bills Yield Steadies, Money Market Rates Decline

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