Yields Pull Back as Nigeria's Bonds Attract Investors
Patience Oniha, Director General, Debt Management Office

Yields Pull Back as Nigeria’s Bonds Attract Investors

The average yield on Federal Government of Nigeria (FGN) bonds fell following demand pressures in the debt capital market. The bulls in the debt capital market have started gaining strength to consolidate on the November playbook. On Friday, the average yield declined 10 basis points to 14.3%.

A similar scenario played out last month amidst another 100 basis points interest rate hike. The domestic bonds market was mildly bullish in November with the average yield lower by a basis point to 14.3% month on month, according to Afrinvest market note.

For November trading proceedings, analysts noted that the market was swayed by buying interests on mid-to-long-term instruments which offset selloffs at the front of the curve.

Accordingly, yields fell 27 basis points and one basis point each to average 14.4% and 14.8% on the medium and long-term papers in contrast to the 41bps rise to 12.9% for short-dated instruments. 

The bullish momentum was supported by the activities of pension fund administrators (PFAs). In its monthly report, the National Pension Commission indicates that PFAs rallied around FGN bonds with about N9 trillion at stake as of October 2022.

Nigeria’s asset and fund managers had adjusted to a more risky adventure in the money market, funding Banks’ balance sheets prior to monetary policy tightening. Last week, while system liquidity remains tight, the apex bank skipped its open market operations auction to refinance N25 billion OMO bills that matured.

Partly, the inflow along with N5 billion coupon payment on FGN instruments reflated the financial system liquidity – albeit, it has marginal impacts on money market rates which settled at double digits.

As investors picked more debt capital market, analysts at Cowry Asset Management told clients via email that the value of FGN bonds moved in mixed directions across maturities tracked.

Specifically, the 10-year 16.29% FGN MAR 2027 debt papers and the 20-year 16.25% FGN APR 2037 bond gained N1.79 and N0.78 respectively, according to analysts’ notes. Consequently, the market corresponding yields fell to 14.03% (from 14.58%) and 15.88% (from 16.02%) respectively on demand pressure.

Cowry Asset note shows that the 15-year, 12.50% FGN MAR 2035 paper and the 30- year 12.98% FGN MAR 2050 debt remained unchanged as their corresponding yields stayed flat at 14.75% and 14.72% respectively.

Across the benchmark curve, Cordros Capital told clients that the average yield contracted at the short (-30bps) and long (-3bps) ends following demand on the MAR-2027 (-55bps) and MAR-2036 (-26bps) bonds, respectively.

Conversely, the average yield expanded at the mid (+4bps) segment as investors sold off the APR-2032 (+8bps) bond, analysts stated. Elsewhere, the value of FGN Eurobonds traded in the international capital market appreciated for most maturities, Cowry Asset stated.

The 20-year, 7.69% paper FEB 23, 2038; and the 30-year, 7.62% NOV 28, 2047, gained USD 0.51, and USD 0.20, respectively, analysts wrote. READ: Investors pull $13.8bn from emerging market securities in August

Meanwhile, these instruments’ corresponding yields fell to 12.00% (from 12.09%), and 11.76% (from 11.80%). The 10-year, 6.375% JUL 12, 2023, bonds lost USD 0.01 as its corresponding yield rose by 9.06% (from 8.96%).

Analysts said they expect the value of FGN Eurobonds to further rise (and yields to decrease) as rates remain attractive at the upper band of 9% #Yields Pull Back as Nigeria’s Bonds Attract Investors

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