Bonds Yield Jumps as Nigeria Seeks to Raise N1.2trn
Patience Oniha, DMO Chief

Bonds Yield Jumps as Nigeria Seeks to Raise N1.2trn

In the secondary market, the average yield on Federal Government of Nigeria (FGN) bonds spiked by 64 basis points as investors sold off their holdings in a bid to reshuffle their respective portfolios for an improved return.

Thus, prices of FGN bonds traded decreased for all maturities. Trading data show there were selloffs across the short, mid, and long ends of the curve. Analysts are expecting higher yields to resurface due to large borrowings that will pass through the debt market.

The bearish tone recorded last week occurred on the back of the Debt Management Office (DMO) plan to raise N1.2 trillion from the debt capital market in the first quarter of 2023 to finance the widening budget deficit.

A number of fixed income analysts said the expected issuance is a catalyst for yield repricing amidst double-digits headline inflation rate and worsening exchange rates which have watered down Nigeria’s funds/asset managers’ portfolios returns significantly.

In its auction calendar, DMO announced a plan to begin FGN bond sales at the end of January, thus the average yield across instruments expanded by 64 basis points to 13.4% on Friday.

“We attribute this week’s bearish sentiment to investors re-pricing bonds upwards in reaction to the release of the Q1-23 FGN bond issuance calendar, which showed higher volume on offer”, analysts at Cordros Capital said in a market brief. 

DMO will raise a total sum of N1.20 trillion in the first quarter of the year, a rather strong increase of 150% when compared with N480 billion raised in the first quarter of 2022.

Across the benchmark curve, traders said the short (+53bps), mid (+49bps), and long (+86bps) term instruments recorded expansions in yields. Specifically, the MAR-2027 (+166bps), APR-2032 (+67bps), and MAR-2036 (+121bps) bonds recorded the largest yield increases.

“In the medium term, we expect frontloading of significant borrowings for the year by the FG to result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply”, Cordros Capital stated.

In the Eurobond secondary market, activities were mostly bearish as sell-side pressures were mostly seen across the curve amidst the recovery in Asian equities and the hawkish stance taken by Fed chair Bullard.

Due to selloffs, the overall average yield for the FGN sovereign curve climbed 15 basis points to settle at 10.05%, according to analysts at Cowry Asset Management Limited. Across tenors, traders noticed sell pressure at the medium and long end of the curve as the average yield rose while the average yield at the short end of the curve was largely unchanged.

Specifically, the price of 10-year, 16.29% FGN MAR 2027 paper fell by N5.59, 15-year 12.50% FGN MAR 2035 bond lost N5.79, 20- year 16.25% FGN MAR 2037 debt decreased by N2.23 and 30-year 12.98% FGN MAR 2050 instrument declined by N2.80

Meanwhile, their corresponding yield rose to 13.90% (from 12.24%), 14.58% (from 13.50%), 15.29 (from 14.93) and 15.03% (from 14.55%). Elsewhere, analysts said the value of FGN Eurobonds traded on the international capital market depreciated for all maturities tracked amid renewed bearish sentiment.

Specifically, the 10-year, 6.38% JUL 12, 2023, the 20-year, 7.69% paper FEB 23, 2038, and the 30-year, 7.62% NOV 28, 2047, lost USD 0.13, USD 0.39, and USD 1.05, while their corresponding yields rose to 7.7 3% (from 7.41%), 11.14% (from 11.07%), and 10.93% (from 10.77%), respectively.

In the new week, traders at Cowry Asset Management said they expect bond prices to appreciate (and yields to fall) due to the expected boost in financial system liquidity. # Bonds Yield Jumps as Nigeria Seeks to Raise N1.2trn

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