Benchmark yields on Nigerian government bonds rose in the secondary market as fixed-income investors reduced their portfolio holdings. Investors responded strongly to the downward spot rate adjustment on new papers at the month’s primary market auction.
Investors continue to expect higher yields on government bonds as a result of the recent increase in benchmark interest rates. However, rates have stayed low as the government works to lower borrowing costs from the domestic market.
According to fixed income specialists, 9-year government bonds experienced the largest selloffs in the secondary market as risk sentiment hampered buying appetite throughout the curve.
Yield on 9-Year FGN bond crossed 21% as investors took profit. Subsequently, the average yield inched higher by 8 basis points to settle at 18.7%, according to Cordros Capital Limited.
The market attributed uptick yield adjustment to recent 50 basis points increase in monetary policy rate. Across the benchmark curve, the average yield expanded at the short (+22bps), mid (+12bps) and long (+5bps) segments.
Investment analysts noted that investors sold off the MAR-2025 (+102bps), FEB-2031 (+38bps) and MAR-2050 (+45bps) bonds, respectively.
Last week, Debt Management Office (DMO) conducted its monthly bond auction told investors, notably banks, pension fund administrators and other market participants.
At the auction, the debt office reopened bond papers worth ₦150 billion, offered a 5-year bond worth N70 billion, 9-year FGN bond worth N50 billion and 9- year bond worth N30 billion.
However, the bid-to-cover ratio dampened to 1.05x from 1.23x in August with a total subscription of ₦414.9 billion while DMO allotted ₦395.1 billion worth of bonds to investors.
Auction results showed that the spot rate on the 5-year bond declined to 19% from 20.3% at the previous auction. Spot rate on FEB 2033 bond plunged to 19.9% from 20.19%, while spot rate for MAY 2033 FGN bond fell to 20% from 21.50% in August.
Analysts anticipate local participants in the bonds secondary market to continue to reprice yields higher to reflect the elevated benchmark interest rate.
In the medium term, Cordros Capital Limited maintains expectation of elevated yields consequent to anticipated monetary policy administration globally and domestically, and sustained imbalances in the demand and supply dynamics.
