The secondary market for FGN bonds remained relatively subdued, with the average yield settling at 19.44%. As inflation continues to rise, the real return on Nigerian bond investments has worsened, now reflecting a negative return of approximately 7%.
This sharp decline in real returns has left bond portfolios vulnerable to the combined effects of soaring inflation and naira volatility.
In October, inflation surged to 33.88%, surpassing analysts’ expectations, following a hike in the monetary policy benchmark interest rate to 27.25%. This left the negative real return gap at 6.63 percentage points.
At the latest bond auction, authorities eased their usual stringent stance on spot rates, prompting notable reactions across the market. On Tuesday, fixed-income traders highlighted sell-side activity focused on April 2029 and February 2031 bonds.
The average yield across the benchmark curve increased slightly at the short end (+1 basis point) due to profit-taking on the MAR-2025 bond (+3 basis points), while yields at the mid and long segments remained stable.
Market sentiment leaned bearish as investors digested the FGN bond auction results, according to AIICO Capital Limited.
At the November bond auction, the Debt Management Office raised spot rates by 25 and 26 basis points for selected instruments. Fixed-income analysts observed sustained interest in the 2050 and 2053 FGN bonds, which remained attractive at yields above 17.00%.
The market’s mild bearish tone reflected participants’ efforts to reprice yields higher at the short and mid-segments of the curve to align with the rate adjustments.
Following the auction, yields on the 2029 and 2031 FGN bonds climbed, settling at 20.80% and 21.80%, respectively, traders reported.
