Yields Slump ahead of DMO Bonds Auction
Patience Oniga, DMO Chief

Yields Slump ahead of DMO Bonds Auction

In the secondary market, the average yield on Federal Government of Nigeria (FGN) bonds slumped ahead of the Debt Management Office (DMO) primary market auction of local bonds on Monday.

Due to strong demand, the average yield dipped by 17 basis points to 13.1% amidst the ongoing rally in the fixed income market, local investors took positions at the short end of the curve as Debt Office plans to sell bonds in the primary market today.

The DMO is offering instruments worth N360.00 billion through re-openings of the 13.98% FGN FEB 2028, 12.50% FGN APR 2032, 16.25% FGN APR 2037 and 14.80% FGN APR 2049 bonds.

Across the benchmark curve, Cordros Capital told investors that the average yield contracted at the short (-67bps) end following the interest on the MAR-2025 (-151bps) bond.

However, the FGN Bond yield expanded slightly at the long (+8bps) end due to investors taking profits off the APR-2037 (+30bps) bond. Conversely, the average yield was flat at the mid-segment.

Projecting into the week, analysts said they expect the outcome of the FGN bond primary auction to shape the direction of yields in the secondary market.

In a market brief, an investment firm, Cowry Asset Management Limited, expects the stop rates to moderate – mirroring the drop in the money market rate for the 364-day bill.

Last week, the DMO sold N662.62 billion in bonds (N302.62 billion more than its offer), via N144.533 billion for the 13.98% FGN FEB 2028, N65.044 billion for the 12.50% FGN APR 2032, N232.446 billion for the 16.25% FGN APR 2037, and N220.574 billion for the 14.80% FGN APR 2049.

Given the huge subscription, stop rates for the FGN Bond 2028, 2032, 2037, and 2049 fell to 14.00%, 14.90%, 15.80%, and 15.90%, respectively, from 14.60%, 14.75%, 15.80%, and 15.80%, according to auction results cited by analysts. 

Also, the value of FGN bonds traded in the secondary market moderated further in tandem with the stop rates as investors filled the lost bids in the secondary market for trading local bonds.

The 10- year, 16.29% FGN MAR 2027 instrument, the 20-year, 16.25% FGN APR 2037 debt, and the 30-year, 12.98% FGN MAR 2050 lost N0.15, N1.74, and N0.81; Cowry Asset stated in a mail sent to investors.

Analysts said due to selling pressures, these FGN bonds’ corresponding yields rose to 13.41% (from 13.37%), 15.60% (from 15.30%), and 15.10% (from 14.96%). However, the 15-year 12.50% FGN MAR 2035 remained relatively unchanged week on week, as its corresponding yield stayed steady at 14.58%.

Elsewhere, the value of FGN Eurobonds traded on the international capital market depreciated further for all maturities tracked amid sustained bearish sentiment.

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 USD 1.00, USD 3.67, and USD 2.79, while their corresponding yields rose to 10.84% (from 8.34%), 12.17% (from 11.49%), and 11.87% (from 11.39%), respectively.

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