FGN Bonds Yield Rises to 14% Ahead of DMO Auction

FGN Bonds Yield Rises to 14% Ahead of DMO Auction

The average yield on Federal Government of Nigeria (FGN) bonds rose by 10 basis points to 14.20% ahead of the Debt Management Office (DMO) primary market auction on Monday.

At the auction, the debt office is offering instruments worth N360.00 billion through re-openings of the 14.55% FGN APR 2029, 14.70% FGN JUN 2033, 15.45% FGN JUN 2038 and 15.70% FGN JUN 2053 bonds.

DMO has already raised about N4.6 trillion in bonds this year translating to about 70.0% of the domestic borrowing target for the year. Over the medium term, analysts said they expect yields in the FGN bond secondary market to remain elevated, driven by the sustained imbalance in the demand and supply dynamics.

However, they highlight that deliberate actions by the DMO to keep borrowing costs moderate remain a downside factor. In the secondary market last week, fixed income securities investors stayed on the sidelines ahead of this month’s FGN bond. 

Accordingly, traders said in an update that the average yield advanced by 10bps to 14.2%. Across the benchmark curve, analysts noted that the average yield contracted at the short (-9bps) end as investors demanded the MAR-2024 (-53bps) bond. 

Traders added that the yield curve however expanded at the mid (+13bps) and long (+17bps) segments following sell pressures on the JUN-2033 (+23bps) and JUL-2034 (+45bps) bonds, respectively.

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“We expect the September 2023 bond auction result to influence the sentiments in the secondary market”, Cordros Capital said in its market update. The borrowing costs for the 10-year, 16.29% FGN MAR 2027, and the 30-year, 12.98% FGN MAR 2050 bonds remained unchanged at 13.03% and 15.35%, respectively, as traders adopted a cautious stance. 

Conversely, the 15-year 12.50% FGN MAR 2035 and the 20-year 16.25% FGN APR 2037 bonds lost N0.59 and N0.67, respectively, while their corresponding yields expanded by 12 and 11 basis points apiece to 14.84% and 15.30%.

    

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