Bond Yield Spikes as Selloffs Dominate Debt Market

Bond Yield Spikes as Selloffs Dominate Debt Market

The average yield on the Federal Government of Nigeria (FGN) Bonds hits 11.2% at the close of market on Friday over selloffs in the space. The fixed income market has been relative upbeat while liquidity position in the financial system strengthened due to inflows.

At the weekend, the overnight lending rate dipped by 5.5 percentage points week on week to 5.7%, as Cordros Capital said the liquidity surfeit from the prior week.

This, coupled with additional inflows from open market operations (OMO) maturities worth N23.95 billion saturated the system and outweighed outflows for this week’s debits, according to Cordros Capital note.

“We expect the overnight lending rate to trend upward, as expected inflows from FGN bond coupons worth N160.32 billion are likely to be offset by funding pressures for next week’s T-Bills, OMO and FX auctions”, analysts said.

Meanwhile, trading in the Treasury bills secondary market sustained last week’s bearish sentiment following the continued slowdown in demand for bills.  Thus, the average yield across all instruments rose by 41 basis points to 3.8%.

Across the market segments, the average yield expanded both at the open market operations (OMO Bills) and Nigerian Treasury Bills (NTB) segments by 28 basis points to 4.0% and 43 basis points to 3.8%, respectively.

Analysts at Cordros Capital anticipate a further increase in T-bills yields given the expected tight liquidity position. Also, the CBN is set to hold its bi-weekly NTB primary market auction with N5.86 billion worth of maturing bills on offer.

Elsewhere, trading activities in the FGN bonds secondary market closed on a bearish note, as demand for FGN bonds remained low amid investors positioning for this week auctions – PMA.

Consequently, the average yield increased 11 basis points week on week to 11.2%. READ:
Local Investors Dominate Stock Market as FPIs Move Out

Across the benchmark curve, analysts note shows that the average yield increased at the short (+25bps), mid (+12bps) and long (+5bps) ends, as investors took profit off the APR-2023 (+102bps), FEB-2028 (+40bps), and APR-2037 (+25bps) bonds, respectively.

In the new week, Cordros Capital analysts said they expect the outcome of the April 2022 FGN bond auction scheduled to hold on Monday – 25th April -to influence the direction of yields in the secondary market.

At the auction, the Debt Management Office (DMO) will be offering instruments worth N225.00 billion through a new issue of the FGN APR 2032 bond and re-openings of the 13.53% FGN MAR 2025 and 13.00% FGN JAN 2042 bonds. #Bond Yield Spikes as Selloffs Dominate Debt Market