Nigeria's Bond Yield Slumps ahead of DMO Auction
Patience Oniha, DMO DG

Nigeria’s Bond Yield Slumps ahead of DMO Auction

Trading activities turned bullish as inflows from the federal government of Nigeria (FGN) bond coupon payments spurred investors to cherry-pick bonds with attractive yields across the curve.

The average yield on the bond instruments across tenors slumped amidst strong buying interest in the secondary market for local debt capital. As a result, the average yield contracted by 31 basis points to 13.1%.

The decline in the yield curve followed strong buying momentum on government debt papers last week.   According to fixed income analysts, bargain-hunting was witnessed at the short (-101bps) and long (-1bp) ends of the benchmark curve.

There was strong demand for the MAR-2024 (-280bps) and MAR-2050 (-7bps) bonds, respectively while the average yield was flat at the mid-segment. Amidst an existing plan to support the budget deficit, Nigeria’s Debt Management Office (DMO) will be holding a primary market auction to raise N225 billion from the local capital market on Monday.

Reflecting the pattern observed in the fixed interest income market, analysts have projected a decline in spot rates. The sum (N225 billion) will be split as N75 billion a piece for the 13.98% FGN FEB 2028, 12.50% FGN APR 2032, 16.25% FGN APR 2037 and 14.80% FGN APR 2049.

Cordros Capital analysts said they expect the stop rates to moderate, as DMO might mirror the declining trend in the money market stop rate. Meanwhile, as higher demand permeated the local market, the value of FGN bonds traded increased for most maturities, and their corresponding yield declined accordingly. 

Specifically, the 10-year, 16.29% FGN MAR 2027 instrument and the 30- year, 12.98% FGN MAR 2050, rose, respectively, by N1.70 to N109.00, and N0.39 to N86.99, according to Cowry Asset Management Limited.

Traders stated that the 20-year 16.25% FGN APR 2037 debt instrument lost N0.05, and then the corresponding yield rose to 15.30% from 15.29%. Meanwhile, the 15-year 12.50% FGN MAR 2035 remained relatively unchanged week on week as its corresponding yield stayed steady at 14.58%.

“… We expect the result of this year’s first FGN bond primary auction scheduled to hold on Monday to influence the sentiments in the secondary market”, Cordros Capital analysts said in a note. Elsewhere, the value of FGN Eurobonds traded on the international capital market depreciated further for all maturities tracked amid sustained bearish sentiment, Cowry Asset said.

Specifically, the 10-year, 6.38% JUL 12, 2023, the 20-year, 7.69% paper FEB 23, 2038, and the 30-year, 7.62% NOV 28, 2047, lost USD0.24, USD2.01, and USD 2.83. Meanwhile, these international bonds instruments’ corresponding yields rose to 8.34% (from 7.73%), 11.49% (from 11.14%), and 11.39% (from 10.93%), respectively.  

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