Nigeria’s Bonds Yield Trend Raises Fresh Concerns
The local bonds market saw limited activity with most participants staying on the sidelines despite some offers around the mid-tenors. Trading volumes were low, with most of the activity focused on the April 2029 and February 2031 papers.
Still, there profit taking trading activities were noticed across the segments. Most of the sell trade centered on the Feb-31 maturity, which closed at 18.75%, 5bps higher when compared to the previous day’s close of 18.70%.
Overall, the average benchmark yield stayed muted at 18.4%. Across the benchmark curve, the average yield increased at the long (+1bp) end, driven by selloffs of the MAR-2036 (+5bps) bond, while it closed flat at the short and mid segments.
February 2024 witnessed a remarkable resurgence in the Nigerian fixed income market, characterized by a substantial compression of yields and a surge in investor confidence, Erad Partners said in a report.
Notably, the market experienced a month-on-month yield decline of approximately 400 basis points, a significant shift driven by robust investor sentiment from both domestic and international participants.
The firm said the bullish trend was primarily fueled by a confluence of factors, with the most significant being the encouraging deceleration of inflation. The headline inflation rate, which had previously reached a concerning peak of 34.8%, moderated significantly to 24.28% in February.
This positive development instilled confidence in investors, suggesting a potential easing of monetary policy tightening in the medium term. Following the completion of the consumer price index rebasing exercise in February, the new data showed a sharp moderation in inflation to 24.48% in January 2025, down from 34.8% in December 2024 under the old series.
This significant decline, coupled with expectations of further moderation in the course of the year, fueled strong buying interest from investors, leading to notable yield compression in February, CardinalStone Partners Limited said in a note.
The firm said the outlook for yields is still biased to the downside, especially given that liquidity of about N4.5 trillion will hit the system in March. A slew of investment banking firms echo the same sentiments, and expects some level of policy shift as inflation moderated,
“While the declining yield environment is favourable for the government’s domestic debt servicing, there are concerns that the lower yields could trigger capital outflows, potentially undermining the Central Bank’s efforts and putting renewed pressure on the Naira”, CardinalStone stated. #Nigeria’s Bonds Yield Trend Raises Fresh Concerns Nigerian Exchange Falls by N73bn as Investors Dump VFD, OANDO
