The benchmark yield on Nigerian government bonds fell below 19% as investors expanded their debt market asset holdings through secondary market demand. As the market prepares for the Debt Management Office (DMO) primary market auction, buying interest has plummeted the yield.
Due to the holiday, the DMO pushed back its monthly bond sale by one week. September’s bond market calendar shift mirrored that of August. Last month, the Debt Management Office postponed its auction for a week and decreased the offer size from N300 billion to N190 billion.
This move shows that the government’s borrowing needs may be reduced, maybe due to frontloaded borrowing in Q1:2024, a shift toward an expansionary environment, or the study of alternative funding options such as local dollar bonds, according to Meristem Securities.
The market expects the authority to reduce bond supply at the primary market auction to N190 billion versus N300 billion due to frontloading of assets. In the bond market, trading activities on local assets were relatively quiet as investors continued to digest the inflation slowdown.
Traders said they observed investors acquire papers on the mid segment of the curve (-2 bps) and sell-offs on the short end of the curve (+1 bps). 2031 FGN bonds, May 2033 papers, Feb 2034s bond, and 2053s saw increased demand in the secondary market.
Thus, the average mid-yield decreased, and analysts said they anticipate more buying interest this week, supported by coupon inflows. Across the benchmark curve, the average yield expanded at the short (+1bp) end due to the selloff of the JAN-2026 (+5bps) bond but declined at the mid (-1bp) segment.
The yield contraction was due to interest in the JUN-2033 (-6bps) bond. However, the average yield remained unchanged at the long end due to thin trading activities. Overall, the average yield stayed flat at 18.84%.
“We anticipate a sustained gradual downtrend in yields, as the spiking yields in the fixed income market are beginning to wane off, as evidenced by reduced auction offers and declining yields, even in OMO auctions.
“Although, yields are still expected to remain at elevated levels as liquidity will play a crucial role in influencing rate movement,” traders said.
