Yield Settles at 14.4% as Spot Rates on Reopened Bonds Spike

Yield Settles at 14.4% as Spot Rates on Reopened Bonds Spike

The average yield on Federal Government of Nigeria (FGN) bonds tempers after the market saw an increase in spot rates offered to market participants in the primary market auction conducted by Debt Management Office last week.

Amidst rising inflation and Broadstreet’s expectation that the Central Bank of Nigeria (CBN) will hike the benchmark interest rate further; trading activities in the secondary market closed on a bullish note.

Demand pressures on government bonds caused the average yield across instruments to contract by 8 basis points to14.4%. Auction result shows that DMO successfully sold FGN bonds worth N225 billion at the primary market auction, N75 billion a piece for the 14.55% FGN APR 2029, 12.50% FGN APR 2032, and 16.25% FGN APR 2037 re-openings.

Demand was higher across the three tenors as the total subscription level settled at N344.01 billion; however, demand at the auction was higher for the long-dated bond accounting for about 78.4% of the total subscription level, Cordros Capital said in a note.

As a result, the DMO eventually allotted instruments worth N269.22 billion, resulting in a bid-to-cover ratio of 1.3x. This was in stark contrast compared with the previous auction where there was low demand. READ: T-Bills Yield Settles at 4.43% as Naira Loses Weight

The Nigerian government agency actually raised spot rates on the reopened bonds amidst tight demand in the debt capital market.  The auction result shows that stop rates for the APR 2029, APR 2032 and APR 2037 rose to 14.75%, 15.20%, and 16.20%, respectively, from 14.50%, 15.00%, and 16.00%.

However, the values of FGN bonds traded at the secondary market traded quietly as investors took a stand-off approach to observe maturities with attractive yields, according to traders at Cowry Asset Management.

Hence, the 10-year 16.29% FGN MAR 2027 bond, the 15-year 12.50% FGN MAR 2035 bond, the 20- year 16.25% FGN MAR 2037 bond, and the 30-year 12.98% FGN MAR 2050 bond, with their current yields of 14.59%, 14.80%, 15.96%, and 14.95%, respectively, all traded flat.

Analysts said they attribute the bullish sentiment to investors looking to the secondary market to compensate for lost bids at the primary market auction. Consequently, across the benchmark curve, the average yield expanded at the short (+4bps) end following profit-taking activities on the APR-2023 (+77bps) bond.

However, the yield curve slid at the mid (-8bps) and long (-16bps) segments as investors demanded the APR-2032 (-9bps) and APR-2049 (-39bps) bonds, respectively. Elsewhere, the value of FGN Eurobonds traded in the international capital market depreciated for all maturities tracked by Cowry Asset Management.

Market analysts also noted that the 10-year, 6.375% JUL 12, 2023, bonds; the 20-year, 7.69% paper FEB 23, 2038; and the 30-year, 7.62% NOV 28, 2047, lost $0.62, $3.74, and $5.85, respectively, while their corresponding yields rose to 8.90% (from 7.83%), 12.42% (from 11.70%), and 12.32% (from 11.28%). # Yield Settles at 14.4% as Spot Rates on Reopened Bonds Spike

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