Investors Sell Down Nigerian Bonds, DMO Still Cuts Supply
The average yield on Nigerian bonds declined as investors sold down their holdings ahead of the Debt Management Office (DMO) primary market auction today. While the market turned bearish, the DMO has further cut supply of FGN bonds as the authority nears 2024 target.
Traders said in their separate reports that the local bond market experienced a relatively calm trading session earlier last week, with notable sideways interest observed in the bonds maturing in February 2031, May 2033, February 2034, and June 2053.
Fixed income market analysts TrustBanc Limited said market sentiment reflected a mix of cautious optimism and uncertainty, with participants keenly awaiting signals that could influence the trajectory of interest rates.
Bondholders have been trading FGN bonds cautiously as supply continues to reduce at the monthly primary market auction. This happened after the authority’s early in the year frontloading and what some market critics tagged as financial repression.
The DMO has kept a tight fist on spot rates over the years, which caused an inverted yield in the fixed income—a situation where investment in the short term becomes preferable to long bets.
Explaining the proceeding in the market, investment analysts said trading activities was met with both sell pressures and cautious trading from investors. In a note, Cordros Capital Limited spotted pockets of demand following the reduced volume on offer at the upcoming auction to N120.00 billion from N180.00 billion in October.
Offer size has been reduced from N360 billion to N180 billion, and now N120 billion in the course of the year as the DMO nears the final phase of its auction sales. Across the benchmark curve, the average yield expanded at the short (+13bps) and long (+7bps) ends, driven by sell pressures on the MAR-2025 (+47bps) and APR-2037 (+100bps) bonds, respectively.
Meanwhile, the average yield contracted at the mid (17bps) segment following buying interests in the JUL-2034 FGN bonds, whose yield dipped by 77bps. Fixed income market analysts said they expect the direction of yields in the secondary market to be shaped by the outcome of this month’s FGN bond auction holding on Monday.
A slew of fixed income market analysts said in their respective reports that the average yields expanded by 2bps to settle at 19.43%, following bearish sentiments on the short end (+5 bps) of the yield curve.
On Monday, DMO plans to offer N120 billion through reopening of April 2029 and February 2031 papers at the primary market auction on Monday. The offer is expected to be split into N60 billion each. #Investors Sell Down Nigerian Bonds, DMO Still Cuts Supply Naira Depreciates Ahead of 2-Week Automated FX Trading Trial

