In advance of inflation data for the month of June 2024, investors sold off a portion of their bond holdings on the secondary market on Wednesday, which caused the benchmark yield to increase by 16 basis points (bps).
Money rates in the financial industry have increased as a result of changing market dynamics brought about by higher interest rates. Additionally, this has contributed to yield shifting, which has stayed high throughout the year.
Despite efforts by the debt management office (DMO) to lower government interest payments on public debt, investors in fixed-rate instruments are persistently looking for inflation-protected investment options in the financial market.
Since investors are still receiving negative interest rates on government-issued borrowing instruments, rates have stayed low. On the other hand, as part of a portfolio rebalancing strategy meant to maximize returns, investors sold off their bonds.
On Wednesday, bearish sentiments were observed in the secondary bond market, particularly at the short end and mid-segment of the curve, CardinalStone Securities Limited said in a note.
Fixed-interest securities investors said they saw selloffs on the MAR-35 and JUN-33 FGN bonds as yields expanded by 320 bps and 139 bps to close at 23.51% and 19.59%, respectively. Overall, average yields gained by 16 basis points to close at 18.94%.
The bond market closed bullish in Q2’24, falling by 10 basis points to 18.94% at the end of Q1’24 and 18.84% at the end of Q2’24, AIICO Capital Limited said in a report.
The investment firm alluded to the slight bullish close for the quarter to the downtrend in stop rates at the auction, particularly the first two auctions in Q2’24.
The July auction makes predictions challenging to decipher, AIICO said in the note. However, analysts said the DMO has raised a significant amount from the bond auction in H1 24, worth about ₦4.13 trillion, and at a very high cost.
