Benchmark Yield Declines as Nigerian Government Bonds Rally
The average yield on Federal Government of Nigeria (FGN) declined by 5 basis points (bps) as investors increased bets on the local bonds. Trading activities picked up as asset managers, portfolio investors sought to optimise their holdings.
Trading activates reflects investors expectation of yield repricing after a surprise adjustment made by the Debt Office in August primary market auction amidst improved macroeconomic conditions.
The authority raised bonds supply at the auction, and spot rates were adjusted upward, in contrast to market expectation. This happened despite sustained disinflation, which has widened real interest rate to 5.62%.
In the secondary market on Tuesday, Nigerian bonds that will expire in 2031, May 2033, and Jun 2053 saw modest interests, though only a few deals closed. As a result of the bullish sentiment, the average yield contracted by 5bps to 16.8%.
Across the benchmark curve, the average yield contracted at the short (-5bps), mid (-10bps) and long (-1bp) segments. The yield contract was driven by the demand for the AUG-2030 (-17bps), FEB-2031 (-24bps) and JUN-2053 (-6bps) bonds, respectively.
In August, the Debt Management Office (DMO) offered N200 billion across the AUG 2030 (5- year) and JUN 2032 (7-year). The auction was oversubscribed by N68.16 billion although, total subscription moderated by N32.51 billion from the previous auction to N268.16bn.
Allotment also declined, down N49.77 billion to N136.16 billion. Notably, stop rates widened significantly, with the 5-year and 7-year clearing at 17.95% p.a. and 18.00% p.a, up by 225.3bps and 210bps, respectively. #Benchmark Yield Declines as Nigerian Government Bonds Rally CBN Defends Naira With $586 Million in August
