Benchmark Yield Crashes as Investors Hunt FGN Bonds
The benchmark yield on Federal Government of Nigeria (FGN) bonds maintained downward movement in the secondary market as investors increased bets on the naira assets ahead of inflation with the expectation that supply for the third quarter will be tight and competitive.
The bullish local bonds market has forced yield down below 17% due to tight supply expectations in the third quarter of the year. Investors are locking in elevated yields in anticipation that disinflation will force benchmark interest rates down—starting from the second half of the year.
Inflation has reduced to 22.97%, but the interest rate benchmark has remained unchanged at 27.75%, which makes the real return on investors hover at 4.53%. “When inflation rate eventually drop further, real return on investment will surpass 5%, creating ample opportunity for monetary policy easing”, a slew of analysts told MarketForces Africa.
In the secondary market, a mild bullish activity was observed in the FGN Bonds market, as yields declined by 10 basis points (bps) across the short end of the curve.
This resulted in a 2bp contraction in the average yield, which closed at 16.81%, according to a separate analyst report reviewed. In the market, offers emerged across short-to-mid tenors, particularly on Nigerian bonds maturing in Apr-2029, Feb-2031, Jun-2032, and May-2033, fixed income market analysts said.
However, wide bid-ask spreads limited trading activity, with only a few deals executed at levels slightly below Friday’s close. Market sentiment is expected to maintain its cautious tone in tomorrow’s session, with trading activity likely to stay muted outside of selective demand for benchmark tenors. #Benchmark Yield Crashes as Investors Hunt FGN Bonds Bullish Momentum Propels Market to Uncharted Heights as Investor Sentiment Soars
