Benchmark Yield on Nigerian Bonds Climbs to 18.1%
In the secondary market, bonds traders, and holders reacted negatively to a spike in short-term rates on Treasury bills. The selloffs in the secondary segment crossed average yield to the other side of 18% while bond prices declined but not steeply. This rate level with OMO bills position and track along Treaury bills curve following spot rates adjustments.
The recent benchmark interest rate by the monetary authority has altered market dynamics, resulting in double digit high interbank rates and higher costs of standing lending facility, a window where local banks borrow from the Central Bank.
The mild selloffs in the bond market happened just after the apex bank sold 364-day treasury bills at 21.45% to attract foreign investors and boost FX liquidity after long months of US dollar shortage. Foreign investors have been aloof due to negative interest yield and hope for US Fed rate cuts lingers.
Hence, trading activity for Federal Government of Nigeria (FGN) Bonds turned bearish in reaction to the inverted yield curve. There were mild sell-offs in the MAR 2036 FGN Bonds, MAR 2035 notes, and JUL 2034 maturities.
Investors’ decision to unload these government borrowing instruments led to a 66 basis points uptick in the average secondary market yield, settling at 18.01%, Cowry Asset Management Limited market update revealed.
In its market update, Cordros Capital Limited to investors via email that across the benchmark curve, the average yield increased at the short (+49bps), mid (+32bps) and long (+96bps) segments. Traders are projecting increase selloffs due to inverted yield while debt office frontload debts.
In February, bears extended dominance as market participants geared up for DMO’s historic ₦2.5 trillion auction and the hawkish outcome of the long-anticipated MPC meeting. At the auction, the debt management office (DMO) issued fresh 7 and 10-year sovereign papers to raise ₦2.5 trillion ahead of March’s ₦720.0 billion maturity.
However, demand fell short of offers on both tenors – 0.9x and 0.7x, respectively – as liquidity constrained investors pre-empted DMO’s reluctance to raise yield to a more fundamentally reflective level, Afrinvest said in a note.
In the end, the DMO was only able to allot a total of ₦1.5 trillion with yield clearing at 18.5% (7-year) and 19.0% (10-year) respectively as against a bid range of 18% – 30% for both tenors. Afrinvest stated that the FG has so far raised 31.4% of its ₦6.1 trillion 2024 domestic borrowings target through bond sales.
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