Nigeria’s Bond Yield Rises as DMO Plans N360bn Auction

The average yield on Federal Government of Nigeria (FGN) bonds yields climbed in the secondary market over bearish trading activities ahead of Debt Management Office (DMO) plans to auction N360 billion papers.

At the auction, the DMO will be 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.

Reflecting investors’ mood given changing market dynamics, analysts are projecting that spot rates on the issuance will increase at the auction, a projection anchored on a sustained inflation rate surge and pressures on liquidity in the financial system.

Fixed interest income analysts and traders said they expect the outcome of the March 2023 FGN bond auction to influence the sentiments in the secondary market – which has maintained bullish momentum over the year.

Last week, the local bond market was dominated by bearish sentiment as traders sold off in anticipation of higher stop rates at the primary market auction, traders said in a market brief.

Thus, the market price of FGN bonds traded at the secondary market moderated, pushing yields up as investors begin to demand for higher returns following inflation pressures in the economy.

Nigeria’s headline inflation rate worsened to 21.91% in February, according to statistics office data, pushed by failed naira redesign policy and rising food prices. This has widened real return on investment further but analysts are projecting yield repricing as government implement borrowing plans for 2023.

The 10-year 16.29% FGN MAR 2027 and the 20-year 16.25% FGN APR 2037 notes fell by N0.35 and N0.29, respectively; analysts at Cowry Asset Management Limited told clients via email.

Due to the selloffs in the segment, the debt instruments see their corresponding yields inch upward to 12.45% (from 12.36%) and 15.40% (from 15.00%), respectively.

However, traders revealed that the yield on the 15-year 12.50% FGN MAR 2035 and the 30-year 12.98% FGN MAR 2050 stayed unchanged at 14.68% and 15.00%, respectively.

Given the trading pattern, the average yield expanded by 20 basis points to 13.3%.

Across the benchmark curve, Cordros Capital Limited analysts said the average yield inched higher at the short (+58bps) and long (+6bps) ends. Investors took profit on the MAR-2024 (+191bps) and APR-2049 (+28bps) bonds, respectively.

Meanwhile, the average yield was flat at the mid-segment, analysts maintain a medium-term view that the FG’s frontloading of significant borrowings for the year will result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply. #Nigeria’s Bond Yield Rises as DMO Plans N360bn Auction