Nigerian Bonds Yield Falls, Lower Rates on TBills Signals Rally
The average yield on Nigerian government bonds decreased in the secondary market due to growing investor interest in naira assets amidst indications of limited supply and rate adjustments in the third quarter of the year.
Having caught signals that spot rates on fixed interest securities will drop sharply, asset managers and pension fund operators, including cash-rich Nigerian banks, are pumping funds into government securities ahead of potential monetary policy easing.
At the primary market auction on Wednesday, the spot rates on Nigerian Treasury bills were slashed by 2.50% on average, in line with market expectation which has continued to drive yield southward. Investors switched to lock in yields on fixed income securities assets as spot rates on Nigerian Treasury bills were slashed across standard tenors at the main auction on Wednesday.
Trading activities in the bond market were focused on mid-to-long tenors. Interest was mainly on bonds maturing in May 2033, February 2034, and June 2053, though limited deals were done due to wide bid/ask spreads, AIICO Capital Limited said in a note.
Despite the cautious trading, average yields still dipped 15 basis points (bps) to close at 16.40%, the investment firm told investors in its market report. The recent decline in NTB stop rates is expected to drive stronger demand for bonds this week, significantly pushing yields lower in the secondary market, analysts stated.
FGN bond yields declined across key maturities, though activity was moderate as investors focused on the OMO and Nigerian Treasury bills primary auctions. In June, the FGN bond market traded on a calm and mostly bullish note. The month began with light trading on mid- to long-term papers such as the February 2031s and May 2033s, which saw intermittent interest around the 19.30% to 19.55% yield range.
Market sentiment gradually improved midmonth as the FGN bond auction cleared at lower stop rates of 17.75% for the April 2029s and 17.95% for the new June 2032s. This auction result triggered a rally across the curve, with yields dropping 15 to 20 bps.
Selective buying persisted post auction, particularly in the April 2029s, February 2031s, May 2033s, and June 2053s, although wide bid-ask spreads limited volumes. Analysts said demand remained consistent for the newly issued June 2032s. The month closed with a modest tone as profit taking slowed momentum, but the general sentiment stayed positive.
As a result, the average mid yield on benchmark FGN bonds declined by 44 bps month-on-month to 18.24%. Quarter on quarter, yields declined by 39 bps, reflecting improving demand and easing inflation expectations. #Nigerian Bonds Yield Falls, Lower Rates on TBills Signals Rally CBN Cuts Treasury Bills Rates Sharply, Rejects N1trn Subscription
