FGN Bond Selloffs Provoke 16bps Yield Surge
The benchmark yield rose 16 basis points (bps) as investors sold off part of their bond holdings in the secondary market on Wednesday, ahead of inflation data for the month of June, 2024.
The higher interest rate environment has altered market dynamics, raising money rates in the financial market. This has also helped yield shifting, which has remained elevated over the year.
Fixed interest securities investors consistently in search of inflation protected investment options in the financial market in contrast to debt management office (DMO) efforts to reduce government interest payments on public debt.
Rates have remained subdued as investors continue to earn negative interest yield on government borrowing instruments. Investors however offloaded their bonds holdings as part of portfolio rebalancing strategy, targeted to optimise returns.
On Wednesday, bearish sentiments were observed in the secondary bond market, particularly at the short end and mid-segment of the curve, CardinalStone Securities Limited said in a note.
Fixed interest securities investors said they saw selloffs on the MAR-35 and JUN-33 FGN bonds as yields expanded by 320bps and 139bps to close at 23.51% and 19.59%, respectively. Overall, average yields gained by 16bps to close at 18.94%.
The bonds market closed bullish in Q2’24, falling by 10bps to 18.94% at the end of Q1’24 and 18.84% at the end of Q2’24, AIICO Capital Limited said in a report.
The investment firm alluded the slight bullish close for the quarter to the downtrend in stop rates at the auction, particularly the first two auctions in Q2’24.
The July auction makes predictions challenging to decipher, AIICO said in the note. However, analysts said the DMO has raised a significant amount from the bond auction in H1 24, worth about ₦4.13 trillion, and at a very high cost. #FGN Bond Selloffs Provoke 16bps Yield Surge Banks Stocks Face Selloffs, NGX Sees Intraday Loss
