Benchmark Yield on FGN Bond Dips to 18.8% Ahead of Auction
The average yield on Federal Government of Nigeria (FGN) bonds declined by six basis points to close the previous week at 18.77% ahead of Debt Management Office (DMO) auction.
Trading activities in the secondary market has remained subdued amidst rising inflation and higher interest in the fixed income market. Investors continue to earn negative yield on naira assets as debt office tighten spot rates on bonds sales in the primary market.
In its market update, AIICO Capital Limited said the market started on a bearish note, although with less intensity. Towards the end of the week, analysts said the market showed some calmness as participants prepared for the bond auction scheduled for Monday.
Notably, the market experienced buying interest in the mid-segment of the curve. CardinalStone Securities Limited said in its update that there were bids on the Apr-29 FGN bonds and May-29 papers.
Thus, yields on these FGN borrowing instruments contracted by 30bps and 26bps to close at 18.54% and 18.66%, respectively on Friday.
Market players in the secondary market also exited their short and long positions, while huge demand was recorded on the privately issued MAR-2027 (-100bps) bond, Cordros Capital Limited told investors in its market update.
As a result, analysts noted that the average yield increased slightly to 18.8%. Across the benchmark curve, it noted that the average yield expanded at the short (+6bps) and long (+14bps) ends.
The yield expansion was driven by profit-taking activities on the JAN-2026 (+20bps) and JUN-2038 (+96bps) bonds, according to fixed interest securities analysts.
Conversely, the average yield declined at the mid (-9bps) segment due to interest in the APR-2032 (-16bps) bond, Cordros Capital Limited told investors in its market update.
According to auction calendar, the DMO is set to offer instruments worth N450.00 billion through re-openings of the 19.30% FGN APR 2029, 18.50% FGN FEB 2031 and 19.89% FGN MAY 2033 bonds.
Analysts predict despite its subdued spot rates, demand would come strong as investors seek investment options to reduce their exposure to accelerating inflation.
AIICO Capital Limited expects the outcome of the FGN local bonds auction to dictate market activities in the new week.
“We believe the outcome of this month’s FGN bond auction holding on Monday will influence the direction of yields in the secondary market”, Cordros Capital Limited seconded.
The investment firm maintains its medium-term expectation of elevated yields consequent to anticipated monetary policy administration globally and domestically, and sustained imbalance in the demand and supply dynamics. #Benchmark Yield on FGN Bond Dips to 18.8% Ahead of Auction
