Yields Slump as Spot Rates on Nigeria’s Bonds Fall
The average yield slumped after the Debt Management Office, DMO, oversold its bonds offering at the primary market auction conducted last week. Spot rates on fixed income instruments have been on the decline despite a worsening inflation rate.
Thus, returns on naira assets have further depressed while yields repricing momentum has been halted following higher subscription levels seen in the past auctions. To fulfil lost bids which came strong, market participants moved to the secondary market with a bullish mood, thus forcing the yield curve to track lower.
MarketForces Africa reported that there has been strong rally in the fixed income market driven by activities on institutional investors and of course Pension Fund Administrators. To some analysts, this is an unexplainable condition given the ongoing rally in the equities market.
Traders indicate a large amount of free funds seeking alternative investing windows in the economy, causing both fixed income and the stock market to be upbeat at the same time. At the weekly auction last week, demand came higher across the three tenors. In value terms, the total subscription exceeded the amount offered at N532.20 billion, quite more than N344.01 billion recorded in the previous auction.
According to analysts, longer tenored bonds recorded the highest interest. The DMO eventually allotted instruments worth N264.52 billion, N39.52 billion higher than offered. The auction circular shows that DMO offered instruments worth N225 billion to investors through re-openings of the 14.55% APR 2029 bond, 12.50% APR 2032 and 16.25% FGN APR 2037 bonds.
A sum of N45.448 billion for the 14.55% FGN APR 2029, N40.420 billion for the 12.50% FGN APR 2032, and N178.647 billion for the 16.25% FGN APR 2037 was allotted at the auction. Given the strong subscription level, especially for longer maturities, stop rates for the APR 2029, APR 2032, and 2037 fell to 14.50%, 15.00%, and 16.0%, respectively, from 14.50%, 15.00%, and 16.00%, according to separate traders notes.
In its market note, Cowry Asset said despite the decline in stop rates, traders were bullish on most maturities tracked in the secondary market except for the 10-year, 16.29% FGN MAR 2027 debt, which stayed flat at 13.94%. 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 gained N2.27, N9.41, and N4.49.
However, these bond instruments’ yields fell to 14.00% (from 14.43%), 14.44% (from 16.00%), and 14.00% (from 14.72%), respectively, according to traders’ notes. >>>Money Market Rates Slump as Liquidity Improves
“We maintain our view of an uptick in bond yields in the medium term, as the FGN’s borrowing plan for 2023 and expected fiscal deficit point towards an elevated supply”, Cordros Capital said in a report.
The value of FGN Eurobonds traded in the international capital market depreciated for most maturities, Cowry Asset said, noting that investors weighed the impact of the US Federal Reserve’s decision to hike benchmark rates by 50 bps.
Hence, the 20-year, 7.69% paper FEB 23, 2038, and the 30-year, 7.62% NOV 28, 2047, lost $0.28 and $0.29, respectively, while their corresponding yields rose to 12.26% (from 12.20%), and 12.09% (from 12.04%), respectively, Cowry Asset wrote.
The 10-year, 6.38% JUL 12, 2023 bond gained $0.08, although its yield declined to 9.21% (from 9.25%). “…we expect local OTC bond prices to appreciate (and yields to moderate) amid bullish activity in the fixed income space”, Cowry Asset said. #Yields Slump as Spot Rates on Nigeria’s Bonds Fall
