Nigeria’s Bond Yield Slides Ahead of DMO Auction
The average yield on Nigerian Government bonds declined moderately to 19.3% in the secondary market due to increased demand from local market participants. Improved sentiment in Nigerian financial market has helped drive demand for naira assets despite inflation surge expectation.
From 31.70% reading in February, 2024 March Inflation rate is expected to print higher despite sustained increase in benchmark interest rate. The contractionary economic policy stance of the monetary authority has not been able to stop the short-term acceleration of the inflation rate.
On Monday, Nigeria’s debt office (DMO) will conduct primary market auction to offer instruments worth over N450.00 billion through new issuance of a FGN APR 2029 bond, and re-openings of the 18.50% FGN FEB 2031 and 19.00% FGN FEB 2034 papers.
Given the liquidity level in the financial system, supported by rising demand for government instruments, analysts said they expect demand to come strong. Naira Suffers Big, CBN Goes Ballistic Against FX Whales
In the secondary market for government bonds, traders witnessed sustained bullish sentiments from last week. The average yield decreased by 4 basis points to 19.3% as a result. Traders said across the benchmark curve, the average yield expanded at the short (+2bps) end. The yield surge at the short end came following sell pressures on the APR-2029 (+36bps) bond.
Conversely, yield decreased at the long end of the curve, losing 8 basis points, and at the belly of the curve, dropping 2 basis points. The yield movement was driven by investors interest in the FEB-2031 (-17bps) and JUN-2053 (-25bps) bonds, respectively.
The result of this month’s FGN bond auction, which is scheduled for Monday, Cordros Capital Limited predicted, will affect secondary market sentiment.
“We maintain that yields in the FGN bond secondary market will remain elevated in the short term, given the anticipated monetary policy administration globally and domestically and the sustained imbalance in the demand and supply dynamics,” fixed income traders said.
