Nigerian Bonds Return Reduces Ahead of Reopen Offers
Driven by sustained interest in naira assets, the Federal Government of Nigeria (FGN) bonds rallied in the secondary market, and this resulted in higher prices and lower yields.
Investors anticipate the Debt Management Office (DMO) will reduce borrowing costs at its monthly auction for September and quickly locked in yield ahead of fresh supply.
The sentiment triggered bargain hunting on local assets via secondary market transactions. The Central Bank of Nigeria (CBN) reduced the interest rate benchmark by 50 basis points.
Market analysts said the dovish action will trigger lower interest rates on loans and other fixed income securities investments – supported by disinflation and naira stability.
Bonds market activity focused on short- to mid-tenor papers, while the long end remained quiet.
Early buying pushed yields lower on key mid-dated bonds, but sentiment softened midweek following the MPC’s 50 bps rate cut, causing muted activity and a slight rise in the 2031s.
By week’s end, trading activities in the secondary market remained calm, though caution emerged after the DMO announced a ₦200 billion bond offer for the upcoming auction.
Analysts saw spot demand for government bonds that will mature in 2033, and the average benchmark yield fell 8 bps week-on-week to 16.51%.
Traders said they expect market to remain cautious as investors turn their attention to the September Bonds auction. Fixed income market analysts anticipate DMO will lower rates on federal government bonds at the main auction on Monday.
The authority will reopen FGN bonds with 5-year and 7-year maturities at its monthly auction in September 29. The Debt Office will offer a total of N200 billion in bonds for subscriptions to investors, and analysts expect demand to remain strong as demand for naira assets booms.
AAG Capital Limited said the FGN bond auction is likely to see moderate demand as the new Pension Fund Administrators (PFAs) guideline gives pension funds more alternatives to holding bonds, reducing their appetite for long-term government securities. #MTN Nigeria Shrinks as Investors Sentiment Wanes Ahead of Q3
