Yield Hits 14.3% as Market Repriced Bonds

Yield Hits 14.3% as Market Repriced Bonds

The average yield on Federal Government of Nigeria, FGN, bond instruments jerked up to 14.3% in the just concluded as the market re-priced fixed interest securities assets, according to a slew of analysts, noting that the ongoing repricing comes after monetary policy tightening.

With tightening in the financial system liquidity and authorised dealers’ discount window access, the subscription level achieved by the debt management office at its previous Bond auction was squeezed despite higher spot rates.

Consequently, trading activities have been quiet in some market segments while there have also been portfolios rebalancing by some dealers as part of efforts to optimize returns.

Market analysts and fixed income assets traders said they noticed sell pressure on the medium and long ends of the curve as average yield rose 16 basis points and 33 basis points respectively.

The plan to securitise the N20 trillion overdraft obtained from the Central Bank of Nigeria’s ways and means window by the Federal government would mean more issuance is expected in the latter part of the year.

Though some market analysts and traders told MarketForces Africa at the weekend that securitization may not be possible after all in 2022 due to the required processes.

If carried out in the fourth quarter, some corporate issuance may be affected, analysts said, and this could mean crowding out private sector players in the Nigerian debt capital market – taking note of the issuance of the large tickets instruments.

The sell pressures in the secondary market lifted the yield curve, according to traders. Hence the 15-year 12.50% FGN MAR 2035 bond, the 20- year, 16.25% FGN MAR 2037 debt, and the 30-year 12.98% FGN MAR 2050 instrument debt, lost N4.39, N2.65, and N2.37, respectively.

However, their corresponding yields rose to 14.95% (from 14.10%), 16.09% (from 15.71%) and 15.00% (from 14.60%), respectively. On the flip side, the 10-year, 16.29% FGN MAR 2027, gained N0.29, and its corresponding yield fell to 14.25% (from 14.35%)

“In the medium term, we maintain our expectation of an uptick in yields in the bonds market, as both the FGN’s borrowing plan for 2022 and the expected fiscal deficit point towards an increased supply”, Cordros Capital said in a market note.

Trading activities in the secondary market closed the week on a bearish note as investors continued to re-price bonds upwards. As a result, the average yield across all instruments expanded by 16 basis points to 14.3%.

Across the benchmark curve, Cordros Capital analysts said the average yield contacted at the short (-26bps) end due to investors’ buying interest on the APR-2023 (-234bps) bond. READ: Yields Uptrend Back Down as CBN Repriced Spot Rates

It then expanded at the mid (+14bps) and long (+48bps) segments following profit-taking activities on the NOV-2029 (+19bps) and APR-2049 (+126bps) bonds, respectively. #Yield Hits 14.3% as Market Re-priced Bonds