Yields on Federal Government of Nigeria (FGN) bonds took a notable dip in the secondary market this week as investors reacted to limited supply and unmet demand from the most recent primary auction led by the Debt Management Office (DMO).
A significant volume of bids at the primary market auction went unfulfilled, prompting investors to re-enter the secondary market aggressively in search of viable naira-denominated fixed-income assets. This development follows the release of the DMO’s Q2 issuance calendar, which hinted at a tighter-than-usual supply outlook for government bonds.
According to CardinalStone Securities Limited, while investors showed renewed interest in available bonds, their enthusiasm was somewhat restrained by relatively low coupon rates, resulting in cautionary optimism. The average bond yield dropped approximately 30 basis points compared to the final auction rate.
The secondary market experienced an overall decline in mid-tenor yields, sliding by around 12 basis points as trading levels adjusted to reflect the auction stop rates. On average, bond yields settled at 18.44% as investors recalibrated their positions.
Heightened demand followed the DMO’s allotment of ₦100 billion across the 2029 and new 2032 bond issues, priced at stop rates of 17.90% and 17.95%, respectively. This influx of activity led to a broader yield compression of 15 to 20 basis points across various maturities.
Financial analysts at AIICO Capital Limited noted that despite prevailing tight liquidity conditions in the market, demand for FGN securities remained strong. They projected that the fixed-income market would likely retain a mixed-to-bullish tone in the near term, driven by continued scarcity and investor repositioning.
“While some investor segments remain hesitant due to constrained liquidity and modest returns, the relative scarcity of fresh bond issues is pushing buyers back into the secondary space,” the firm explained.
The combination of unmet demand, constrained supply, and cautious but active trading points to a recalibrated yield environment, which could influence government borrowing strategies and monetary policy expectations heading into the second half of 2025.
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