The yield on Nigerian government bonds has increased following the first bond auction of 2025. Investors reacted by selling off their naira-based assets, leading to a rise in bond yields.
The local bond market remained quiet initially as traders focused on the Debt Management Office (DMO) auction, where the government offered N450 billion worth of bonds. These bonds included reissues of the April 2029 and February 2031 bonds, along with a new January 2035 bond.
This auction saw strong demand, with investors submitting bids far beyond the available supply. However, concerns about rising inflation and the possibility of an interest rate hike by the Central Bank of Nigeria (CBN) in February led to an increase in the yield demanded by investors.
Despite this demand, bond market activity was generally subdued. AIICO Capital Limited reported that investors were selling off bonds recently purchased at auction to take quick profits. However, there were limited matching bids from buyers. Trading was particularly focused on the February 2031 and January 2035 bonds, but overall activity slowed as traders turned their attention to an upcoming Open Market Operations (OMO) auction.
Some investors sold both short-term and long-term bonds, particularly the February 2031 and March 2050 bonds. Throughout January, selling pressure continued to dominate the bond market, causing the average benchmark yield to rise by 92 basis points, according to TrustBanc Financial Group Limited.
Across different bond maturities, yields fell slightly for short-term (-48 basis points) and mid-term (-7 basis points) bonds due to strong demand for the March 2025 and April 2032 bonds. However, yields for long-term bonds increased slightly, particularly the January 2042 bond, which saw a 16 basis point rise due to investor sell-offs.
At the auction, the DMO offered N450 billion worth of bonds and received subscriptions totaling N669.94 billion—significantly higher than the N278.82 billion subscribed at the previous auction. Ultimately, the DMO sold N606.46 billion worth of bonds, indicating a bid-to-cover ratio of 1.1x.
Looking ahead, Cordros Capital Limited expects continued interest in the newly issued January 2035 bond due to its attractive rate. The firm also predicts that bond yields may moderate in the coming months as the Federal Government reduces its borrowing and monetary policy shifts.
