The average yield on Nigerian government bonds declined to 16.28% in the secondary market, driven by renewed investor interest following the disbursement of N284.73 billion in coupon payments. This injection of funds significantly improved liquidity levels in the financial system, pushing total system liquidity to over N1.35 trillion, according to a market update by AIICO Capital Limited.
The drop in yields reflects heightened demand for fixed-income securities, particularly by institutional investors looking to reinvest coupon earnings amid expectations of monetary policy easing. Analysts note that the current yield environment offers attractive real returns, especially as inflation continues on a downward trend, now at 22.22%, against the benchmark interest rate of 27.50%.
Analysts at Cordros Securities attributed the yield contraction to reinvestment of coupon proceeds by institutional investors, with sustained demand across short, mid, and long-term bonds. Yields dropped 35 basis points (bps) at the short end, 43 bps at the mid, and 17 bps at the long end of the curve.
Notably, the yield on the APR-2029 bond fell by 48 bps, APR-2032 declined 69 bps, and MAR-2036 shed 40 bps due to strong buying momentum.
Market watchers say the July bond auction by the Debt Management Office, offering N100 billion in local bonds, will be pivotal in determining the next direction for yields.
While disinflation is expected to continue in the second half of the year, expectations are mixed on whether the Central Bank of Nigeria will ease rates, with analysts warning that rate cuts could spark capital outflows.
