Investors Bet on Nigerian Bond as Debt Office Tightens Supply
As investors take a bet on the naira assets, the average yield on the Federal Government of Nigeria (FGN) bond declined by 3 basis points in the secondary market due to buying interest at the mid-end of the curve.
A slew of fixed income securities traders and analysts said the Nigerian government’s bond offering has decreased after the authority frontloaded its past issuances.
Next week, the Debt Management Office is expected to conduct its monthly primary market auction, where it will offer investors N190 billion worth of government bonds.
This is in contrast with the past issuance offer size of N300 billion each month. The authority has already achieved 70% of local bond issuance in the debt market for 2024, raising N4.3 trillion.
Details of the scheduled auction showed that DMO would offer a 5-year re-opening bond worth N70 billion to investors. Also, a 7-year re-opening bond of the same amount will also require a subscription.
DMO will also re-open a 9-year bond worth N50 billion. The secondary market recorded a yield surge to 20% at the beginning as a result of sell side activities amidst economic uncertainties, and inflation conditions.
The local debt market experienced demand activities on MAY-2033 (-48bps), JUN-2033 (-25bps), and FEB-2034 (-38bps) papers.
The yield on May 2023 FGN bond declined by 48 basis points due to bondholders taken positions. The June 2033 FGN Bond saw 25 basis points decline in its yield while 2023 FGN bond yield dipped by 38 basis points. Consequently, average yields settled at 19.97%.
Across the benchmark curve, the average yield closed flat at the short end but declined at the mid (-5bps) segment due to demand for the JUN-2033 (-24bps) bond. Conversely, the average yield advanced slightly at the long (+1 bp) end as investors sold off the JUN-2053 (+20 bps) bond.
In July, the local bond market showed a bearish trend due to tight system liquidity and an interest rate hike by the Central Bank of Nigeria. Before the auction at the end of the month, the market sentiment remained mixed to bearish in anticipation of higher stop rates.
Reflecting investors’ expectations, the stop rates for Apr 2029, Feb 2031, and May 2033 FGN bonds were issued higher than the previous stop rates at 19.89% (+25bps), 21.00% (+81bps), and 21.98% (+48bps), respectively. # Bond Yield Slides to 19.97% ahead of DMO Auction Naira Suffers Big, CBN Goes Ballistic Against FX Whales
