FGN Bond Yield Rises to 14.5%, DMO Raises N4.3trn
Patience Oniha, DMO boss

FGN Bond Yield Rises to 14.5%, DMO Raises N4.3trn

The average yield on the Federal Government of Nigeria (FGN) bonds instruments jumped moderately to 14.5% as a result of investors’ portfolio reshuffle that greeted the apex bank’s decision to postpone the monetary policy meeting indefinitely. 

Central Bank of Nigeria announced that it has postponed the monetary policy committee meeting indefinitely amidst growing uncertainties in macroeconomic performance. The CBN has lost touch with key growth indicators while naira has lost its allure due to exchange rate pressures.

A sustained surge in Nigeria’s headline inflation rate has clouded real return on naira asset investment as investors continue to earn inflation-exposed returns in the fixed income market.

This is coming despite the fact that Nigeria is currently operating in a high interest rate environment following a switch to a hawkish pose in the second quarter of 2022.

Despite the monetary policy tightening, the consumer price index has continued to worsen, reducing the purchasing power of the naira.

In the secondary market, trading activities ended on a bearish note last week, driven by tepid demand as investors adopted a wait-and-see approach to the direction of the benchmark interest rate.

Consequently, the average yield expanded by 8 basis points to 14.5%. Across the benchmark curve, analysts at Cordros Capital reported that the average yield advanced at the short (+30bps) and mid (+5bps) segments.

The trend was attributed to profit-taking activities on the MAR-2024 (+155bps) and APR-2032 (+12bps) bonds, respectively.  Conversely, the average yield contracted at the long (-1bp) end following demand for the JUN-2053 (-15bps) bond.

“Over the medium term, we expect yields in the FGN bond secondary market to remain elevated, driven by the sustained imbalance in the demand and supply dynamics”, analysts said. The investment firm highlighted the deliberate actions by the DMO to keep borrowing costs moderate and remain a downside factor.

DMO Raised N4.3trn

Debt Management Office (DMO) has raised more than it planned via sales of Federal Government of Nigeria (FGN) bonds via primary market auction. In 2023, the DMO had set out to raise a maximum of N3.6 trillion at the end of the third quarter through FGN bonds.

Following its low subscribed auction sales in August, the debt office has raised N4.3 trillion, according to analysts’ note, exceeding its borrowing target by 19.4%.  Based on the current market position, Coronation Research noted that the domestic borrowing target of N7.04 trillion for 2023 will likely be exceeded. 

Market analysts said they expect local bond prices to trade muted as the market seeks for trigger for the bullish sentiment in the midst of an expected strain in financial system liquidity. #FGN Bond Yield Rises to 14.5%, DMO Raises N4.3trn Naira Devaluation Deepens Economic Crisis in Nigeria