Nigeria Bonds Yield Slides Below 15%
The average yield on Federal Government of Nigerian (FGN) bonds declined below 15% amidst an expectation of a further rise in headline inflation.
The latest report published by the National Bureau of Statistics showed that in October 2023, Nigeria’s annual inflation rate increased to 27.33% from 26.72% reported in September.
The latest reading marked the tenth consecutive monthly increase and was driven by increased import costs, the vulnerability of the Naira, and the removal of the fuel subsidy regime by the federal government. This rate is the highest since August 2005.
Ahead of the Debt Management Office (DMO) bond auction on Monday, market players have switched to a bullish mood, ramping up borrowing instruments across tenor.
The renewed buying interest dragged the yield lower. In their respective notes, fixed interest securities traders, and analysts said the average bond yield shed 85bps to close at 14.74%.
Across the curve, buying interest was predominant at the short (-85bps) and mid-end (-170bps) of the curve, according to multi-asset investment firm, CardinalStone.
Consequently, the APR-2029 and MAY-2029 bond papers experienced the highest yield contract. Specifically, APR-2029 FGN bonds saw its yield slump by 196 basis points to 13.95%.
Also, FGN Bonds with MAY-2029 maturity shed 193 basis points to close at 13.97%. Due to negative yield, the market is expecting yield repricing given higher interest rates with pressures on the local currency.
Uncertainties in the fixed income market with negative yield have blocked foreign investors from participating in the market.
The Minister of Finance and Coordinating Minister for the Economy, Wale Edun, on Thursday said the federal government cannot rely on borrowing to fund the 2024 budget. The government, he said, must intensify efforts to generate adequate revenues to reduce its current high deficit financing. Nigeria Eurobond Slumps after CBN Resumes OMO Auction
The minister stated this when he appeared before the joint Senator Committee scrutinising the 2024-2026 Medium Term Expenditure Framework and Fiscal Strategy Paper led by Senator Sani Musa.
Edun briefed the joint panel in company with the Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Zacch Adedeji and the Director General of the Debt Management Office, Ms. Patience Oniha, before the lawmakers called for a closed session.
The minister explained that the best way Nigeria could fund its annual budgets was to spend more money on infrastructure that could generate revenues. He also said the advanced countries have increased their interest rates because they wanted to bring down inflation rate to stabilize their economy.
