Benchmark Yield on Nigeria Bonds Shrinks by 32bps
Demand for Federal Government of Nigeria (FGN) bonds has caused a further decline in its average yield in the secondary market, down 32 basis points to about 18.6%, traders said in their separate reports.
The positive sentiment from ratings upgrade on Nigeria’s economy lifted bonds buying morale among fixed interest securities investors in the secondary space.
The increase appetite for Naira asset follows latest ratings update by Fitch which upgraded Nigeria’s outlook to positive from stable. The International Monetary Fund, IMF, also adjusted growth expectation for 2024 above 3%.
Fitch, IMF and other global ratings agencies have expressed positive opinions about Nigeria’s reform, though key macroeconomic conditions speak otherwise. There have been pressures in the economy, driven by multiple reforms that have immediate negative impacts on citizen.
Still, pension funds administrators and other institutional investors have continue to raise bets on Naira asset on account of double digit yield that have persisted since 2024.
Reacting to the recent rating upgrade, investors in the secondary market for Nigerian bond market increased theor portfolio holdings by parking more cash into FGN bonds across tenor.
Then, average yield declined by 32bps to 18.59% ahead of Debt Management Office (DMO) primary market auction schedule for May. Across the benchmark curve, buying interests were seen at the mid (-8bps) and long (-57bps) segments of the curve.
Traders reported that across the benchmark curve, the average yield inched higher at the short (+1bp) end following profit-taking activities on the MAR-2025 (+2bps) bond. However, yield dipped at the mid (-8bps) and long (-57bps) segments due to buying interest in the FEB-2031 (-26bps) and JAN-2042 (-110bps) bonds, respectively.
“We expect players in the bonds market to continue to reshuffle their holdings in preparation for this month’s FGN bond auction scheduled to hold on 13 May and thus, anticipate activities will remain subdued in the meantime.
“Over the medium term, we expect yields to remain elevated, driven by the anticipated monetary policy administration globally and domestically and sustained imbalance in the demand and supply dynamics”, Cordros Capital Limited said in a note.
