Nigeria's Bond Yield Climbs to 13% as Inflation Jumps

Nigeria’s Bond Yield Climbs to 13% as Inflation Jumps

Reacting to inflation rate growth to 21.82%, Nigeria’s asset managers and bondholders switched trading mode from buying to selling in the secondary market for trading federal government bonds on Wednesday.

In the past few months, the local debt capital market has been on buying momentum as local investors seek to lock down funds in interest-yielding naira assets, though return continues to trail the consumer price index that measures inflation rate.

In a shift, investors dump some bonds, which then pushed the average yield upward by 17 basis points to 13.0%. Across the benchmark curve, analysts revealed that the average yield expanded at the short (+45bps), and long (+1bp) ends following profit-taking activities on the APR-2023 (+263bps), and APR-2037 (+9bps) bonds, respectively.

Conversely, the average yield closed flat at the mid-segment. Yesterday, the National Bureau of Statistics (NBS), revealed that inflation reached its highest level since September 2005 in January 2023, at 21.82%.

The market weighs the impacts on return, thus yield on Nigerian Treasury bills and bond instruments was adjusted upward amidst selloffs. Overall, the average secondary market yield on Nigerian T-bills increased to 3.69%.

The prices of FGN bonds slumped due to selloffs after large auction sales on Monday by debt office. Then, average secondary market yield increased by 14 basis points to 13.25%.

Traders noted that the 10-year FGN and the 20-year debts instruments were 10 basis points and 9 basis points cheaper in the secondary market on Thursday amidst expectation of yield repricing.

A Lagos-based investment firm, Cowry Asset Management said these bonds’ corresponding yields rose to 13.20% (from 13.10%) and 15.89% (from 15.80%). Notably, 15-year FGN Bonds and 30-year paper yields remained constant at 14.79% and 15.26%, respectively, analysts said.

Elsewhere, the value of the FGN Eurobond increased for most of the maturities amid sustained bullish sentiment. Notably, the average secondary market yield contracted marginally to 12.18%

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