Nigeria’s Bond Yield Rises to 12.81% as Inflation Falls
Following selloff pressures in the secondary market, the average yield on Nigerian government bonds rises moderately to 12.81% on Monday as the headline inflation rate for December 2022 slumped to 21.34%, according to the statistics office.
Some analysts have been bullish on a possible upward shift in the yield curve over an expectation of higher domestic borrowings in the local debt capital market in the first half of the year, especially.
However, Nigeria’s debt management office (DMO) is yet to release its bond auction calendar despite a relatively large budget deficit for the 2023 fiscal year.
Yield is projected to rise as analysts at meristem said in a note that the sudden turn in monetary policy direction around mid-2022 propelled fixed income yield upwards. However, yields began a downtrend at the tail-end of the year.
In 2023, the outlook is for fixed income yields to increase, although at a gradual pace, according to Meristem Securities Limited, saying the reason is due to the offsetting effects of the expected higher FGN borrowings as a result of the higher budget deficit, and the expected high system liquidity from coupon payments and bond maturity, especially in the first half of the year.
Also, Asset/Fund managers told MarketForces Africa that a Eurobond call is unlikely in the current year due to tight market conditions following a sustained hawkish pose by the United States Federal Reserves.
Global bankers raised benchmark interest rates in 2022 to fight rising inflation rate pressures across the market, forcing funds to be moving to where it is treated well.
In the secondary market for trading the FGN bond market, the prices of government securities remained largely flat for most maturities, according to Cowry Asset Management Limited.
Consequently, traders told investors via an email seen by MarketForces Africa that the average secondary market yield expanded by 3 basis points as local fund managers offloaded part of the portfolio and yield slumped to 12.81%.
Specifically, the yield on the 20-year debt compressed by 65 basis points or 0.65% to 14.83% following strong selling rallies in the local debt capital market. Meanwhile, the yields on the 10-year FGN bond, 15-year FGN Bonds, and 30-year FGN bonds were steady at 12.24%, 13.50%, and 14.55%, respectively, according to traders’ notes.
Across the benchmark curve, analysts at Cordros Capital said the average yield expanded at the short (+7bps) and long (+2bps) ends of the curve. It was noted that fixed interest income investors sold off the MAR-2025 (+29bps) and APR-2049 (+15bps) bonds, respectively; but closed flat at the mid-segment.
Elsewhere, the value of the FGN Eurobond increased for most of the maturities tracked amid sustained bullish sentiment, according to Cowry Asset analysts. Consequently, the average secondary market yield contracted marginally by 3 basis points to 10.30%.# Nigeria’s Bond Yield Rises to 12.81% as Inflation Falls