Investors in Nigeria’s debt capital market have reduced their interest in local bonds as part of a rebalancing drive to maximise portfolio returns. A low-risk appetite Investors sold off their positions ahead of this week’s inflation statistics. The real return on portfolio has recently improved due to disinflation and a consistent rate.
The debt management agency is expected to cut interest rates on Wednesday due to insufficient bond supply in the primary market. Bond dealers reported adverse sentiments at the short end of the curve last week, as rates on the MAR-25 instrument increased by 153 basis points to 21.52%. The yield increased while investors reduced bond holdings.
Traders explained that the bond market had started the week on a bearish note with sell pressure observed across various maturities: 2031, May 2033, Feb 2034, 2050, and 2053 papers.
However, with the postponement of the FGN bond auction, the market ended the week positively, with renewed buying interest in select papers.
A slew of fixed-interest securities traders opened short positions ahead of this month’s bond auction. Overall, average bond yields appreciated by 15 bps to settle at 18.84%, CardinalStone Securities Limited told investors in an update. Fixed income analysts anticipate the influx of coupons and the expectation of a decline in headline inflation to contribute to a positive market sentiment.
Across the benchmark curve, the average yield expanded at the short (+15bps) and mid (+24bps) segments, Cordros Capital Limited said in its update.
The investment said the yield expansion was driven by sell pressures on the MAR-2025 (+147bps) and FEB-2031 (+53bps) bonds, respectively.
The yield curve, however contracted at the long end (-4bps) following demand for the JAN-2042 bond.
Notably, the DMO postponed the September 2024 FGN bond auction to 23 September due to the public holiday on Monday.
“We expect quiet proceedings in the secondary market as investors adjust their portfolios in anticipation of the upcoming auction”.
Analysts said they maintain medium-term expectation of elevated yields consequent on anticipated monetary policy administration globally and domestically, and sustained imbalance in the demand and supply dynamics.
