Benchmark Interest Rate on Nigeria Bonds Slide to 19.26%
The benchmark interest rate on Nigerian government bonds slide to 19.26% due to buying interest despite inflation fear and concerns over economic outlook.
There is an expectation that the monetary policy authority would increase policy rate to combat Nigeria’s ugly inflation conditions.
Already, monetary policy rate which peaked at 24.75% in March has been insufficient to fight inflation. Despite steep increase of 6% in 2024, consumer price index rose sharply by 1.50% in March.
But negative interest yield has failed to discourage bonds buying at the local market. Demand at primary and secondary markets reflect liquidity levels in the financial system. Lately, institutional investors and pension fund administrators has raised their appetite for government instrument due to elevated yield on naira assets.
In 2024, Nigeria’s debt office has raised N3.1 trillion from FGN bonds sales from its monthly primary market auction spanning four months now. This amount raised so far is more than 50% of total N6.1 trillion expected to raise from local debt capital market to part finance 2024 budget deficit.
Even with elevated yield, investors are still awaiting catalysts that would drive further yield repricing in a bid to close the gap on real return on investment in naira assets. There is about 9% gap between inflation and Nigeria’s interest rate.
Reacting to changing market dynamics, trading activities in bond market closed on a relatively quiet note in the secondary market. This came as equities market rebounded as investors re-channel funds to purchase banking stocks.
In an update, fixed income securities traders at CardinalStone Securities Limited said they witnessed buying interest on the June 2033 and June 2034 papers, whose yields declined by 15bps and 23bps to print at 19.80% and 19.77%, respectively.
Cordros Capital Limited also told investors that across the benchmark curve, the average yield advanced at the short (+1bp) end. Traders attributed the surge to profit-taking activities on the MAR-2025 (+2bps) bond.
On the other hand, yield curve contracted at the mid (-4bps) segment following bargain hunting in the JUN-2033 (-14bps) bond. The average yield was unchanged at the mid segment.
