Nigeria Bonds Yield Falls to 18.5% Amidst New Risk
Due to a mixed trading outing, the average yield on Nigerian government bonds declined slightly in the secondary market to 18.46%. The buying momentum spurred by interest and inflation position shift has boosted the ongoing rally with market expectation of potential yield repricing.
The yield decline reflects Nigeria’s macroeconomic condition where interest rate has raced ahead of inflation, providing inflation protection on naira. However, this has raised another risk as government efforts to reduce local debt service costs could as well trigger capital outflow with persistent decline in bonds yields.
“While the declining yield environment is favourable for the government’s domestic debt servicing, there are concerns that the lower yields could trigger capital outflows, potentially undermining the CBN’s efforts and putting renewed pressure on the naira,” CardinalStone Partners Limited said in a report.
In the secondary market, Nigeria’s plain vanilla bonds had a mixed performance, with strong buying interest in the MAR-25 and JAN-26 maturities. This demand helped push average FGN bond yields down by 8 basis points, closing at 18.45%, according to fixed income market analysts at Cowry Asset Limited.
Asset managers said the local bonds market saw limited activity throughout the week, with trading volumes staying low due to wide bid/ask spreads.
Early in the week, demand was concentrated on the April 2029, February 2031, and May 2033 papers, while offers were scarce. By midweek, yields inched up as most participants stayed on the sidelines amidst the Nigerian Treasury bills auction conducted by the Central Bank.
Sentiment remained mixed towards the week’s end, with buying interest in the Jan 2035 paper and selling pressure on the 2031 and 2034 FGN Bond maturities, leading to a slight yield uptick. Investment firm TrustBanc Financial Group Limited reported to investors that that pressure built up across the curve, particularly at the short and mid-ends.
The Feb-31 bond took the hardest hit as investors offloaded their positions, while the Apr-29 and Jul-34 bonds added to the overall bearish sentiment. #Nigeria Bonds Yield Falls to 18.5% Amidst New Risk Parallel Market Premium Disappears as Naira Exchange Rates Converge