Bond Yield Eased to 18.38% as Investors Boost Holdings
The average yield on Nigerian government bond cleared at 18.38% as bargain hunting persisted in the secondary market amidst tight supply. The second quarter bonds offered by the Debt Management Office (DMO) signal a move away from predominantly borrowing from the local debt market.
Bond auctions have been less aggressive, suggesting the Nigerian ‘government explore other borrowing sources for deficit budget financing. Some analysts said subsidy removal savings appear to have bridged the government funding gap amidst unmet oil production targets.
At the bond market, trading remained subdued, with mild sell pressure at the mid-segment (+3 bps) offset by some demand at the long end (-4 bps). As a result, average yields stayed flat at 18.38%, while fixed interest investors shifted attention to the treasury bills market, which saw a slight bullish tilt.
Across the benchmark curve, the average yield expanded at the short (+2 bps) and mid (+3 bps) segments, Cordros Capital Limited said in a note. However, analysts said the yield surge was due to the sell-off on the JUL-2030 (+10 bps) and FEB-2031 (+14 bps) bonds, respectively. Bond yield contracted at the long (-4 bps) end following the demand for the JUL-2045 (-25 bps) bond.
Activity was modest, with most interest focused on Apr 2029, Feb 2031, and May 2033 bonds. Despite this, yields ended at 2 basis points lower than the previous day, while investors are expected to stay cautious ahead of Q3 borrowing clarity.
The FGN bond market sustained its bullish tone last week, with average yields declining by 19 bps to 18.38%. The rally was broad-based, as yields dropped across all tenors. The market experienced a bit of bearishness resulting from illiquidity until Friday, when liquidity improved.
Short-dated bonds fell the most, down 23 bps to 18.96% p.a., while medium- and long-term maturities dipped by 15 bps and 17 bps to settle at 18.43% p.a. and 17.12% p.a., respectively.
The uniform decline in yields highlights strong investor appetite across the curve, particularly at the short and long ends.
Looking ahead, analysts at Coronation Merchant Bank’s research subsidiary said in a note that they expect the bullish momentum in the fixed income market to persist in the near term, supported by moderating inflation expectations, a stable exchange rate, and anticipation of the start of monetary easing by the Central Bank of Nigeria.
Strong demand for longer tenors, as seen in recent auctions, may continue to pressure yields lower. However, upcoming macroeconomic events like the GDP quarterly announcement and the July MPC meeting outcome could introduce short-term volatility.
Investors are likely to practice cautious buying and maintain duration-heavy positioning to lock in elevated returns. #Bond Yield Eased to 18.38% as Investors Boost Holdings Euro Surpassed $1.17, 4-Year High in FX Market
