Nigerian Bond Yield Falls to 16.28% after Coupon Payment
The average yield on Nigerian government bonds dropped to 16.28% in the secondary market as asset managers and other risk-averse investor groups continue to increase bets on the fixed interest securities.
Disinflation and lower supply have tightened yields on the Federal Government of Nigeria (FGN) in the secondary market. Real return remains hefty at 5.28% as Nigeria’s inflation rate dropped to 22.22% while the interest rate benchmark stayed elevated at 27.50%.
Inflation is projected to decline throughout the second half, supported by the consumer price index rebased figure. Meanwhile, there is mixed expectation about interest rate cuts. Analysts said monetary policy loosening could trigger capital reversal.
The average yield across the short, belly, and long end of the curve has maintained a downtrend as the Debt Office seeks to reduce government borrowing costs. A slew of analysts projected that yields on the naira asset will continue to decline due to sustained buying interest by local banks and pension asset managers.
The Nigerian government bond yield has maintained a downward trend in the secondary market as investors locked in yield in anticipation of monetary easing. In its market note, analysts at Cordros Securities Limited hinted that institutional investors seeking to reinvest their coupon payments in the secondary market drove momentum in the secondary market.
FGN bond coupon payments totalling N284.73 billion boosted liquidity conditions in the financial system, settling at over N1.35 trillion, according to AIICO Capital Limited. Accordingly, the average yield on the local bonds declined by 29 bps to 16.28% as investors bet on the naira asset amidst declining returns.
Across the benchmark curve, the average yield decreased at the short (-35 bps), mid (-43 bps), and long (-17 bps) segments, Cordros Securities Limited said in its commentary note. The yield contraction was driven by heightened demand for Nigerian bonds maturing in APR-2029, whose yield eased by 48 bps. Buying interest in local bonds maturing in APR-2032, losing 69 bps from its yields.
There was also bargain hunting in bonds maturing in MAR-2036, which shed 40 bps from its yield bonds. Analysts believe the outcome of the July FGN bond auction, scheduled for Monday, will shape the direction of yields in the secondary market. The Debt Management Office will offered N100 billion worth of local bonds for subscription at the primary market auction. Naira Reclaims Value as External Reserves Climb to $38.5bn
