Nigerian Government Bond Yield Shrinks to 18.77%
The average yield on the Federal Government of Nigeria (FGN) bond declined slightly in the secondary market amidst tight supply of the debt asset. Investors go bullish on the naira on the back of recent economic growth and expectations that inflation will continue to decline in 20224.
MarketForces Africa gathered that the Debt Management Office (DMO) is gearing to conduct its monthly primary market auction, where it is expected to sell additional securities to investors in September.
Nigeria’s debt office offered N190 billion worth of FGN bonds in the primary market auction. The amount was relatively lower when compared with N300 billion lot size expectation across standard maturities. This suggests, according to fixed income analysts, a reduction in the amount of bond supply as the total bond sales from the year to date have reached about N5 trillion.
The lower supply expectation has however triggered decision to purchase government borrowing securities in the secondary market in line with investors’ portfolio plans. The changing market narrative has been reflecting on transaction conducted in the fixed income market.
In the secondary market, trading activities was relatively quiet with pocket of transactions that plunged FGN bond benchmark yield downward. Due to thin trading session albeit with bullish tilt, the average yield declining by 1bp to settle at 18.77%.
Fixed interest securities investors showed buying interest in the APR-29 (-21bps) paper, resulting in average yield at the short end of the curve, declining by 2bps, CardinalStone Securities Limited said in a note.
In August, the local bond market was not left out in the bullish frenzy, according to AIICO Capital Limited report. In addition to the robust system liquidity, the lower headline inflation fostered the expectation for a dovish bond auction.
Eventually, the bond auction was mixed, with only the 5-year paper (April 2029) closing higher at 20.30% (+41bps) compared to the previous auction, while the Feb 2031 and May 2033 papers closed lower at 20.90% (-10bps) and 21.50% (-48bps), respectively.
“Considering all pointers like system liquidity, bond coupon, lower inflation, and lower government borrowing costs, the bullish sentiment should spill into September,” AIICO Capital Limited said. #Nigerian Government Bond Yield Shrinks to 18.77% CBN Defends Naira with $39m in Forex Market
