Yields on Federal Government of Nigeria (FGN) bonds dropped by an average of 5 basis points as investors ramped up demand for local bonds in the secondary market. Asset managers and portfolio investors actively optimized their holdings, spurred by expectations of yield repricing following the Debt Management Office’s (DMO) unexpected rate adjustments at the August primary market auction, despite improving macroeconomic conditions.
In August, the DMO increased bond supply and raised spot rates, defying market expectations for lower rates amid sustained disinflation, which has pushed the real interest rate to 5.62%. At the auction, the DMO offered ₦200 billion across the AUG 2030 (5-year) and JUN 2032 (7-year) bonds, attracting ₦268.16 billion in subscriptions, a ₦32.51 billion decrease from the prior auction but still oversubscribed by ₦68.16 billion. Allotments totaled ₦136.16 billion, down ₦49.77 billion, with stop rates climbing significantly to 17.95% for the 5-year bond (up 225.3 bps) and 18.00% for the 7-year bond (up 210 bps).
In Tuesday’s secondary market, bonds maturing in 2031, May 2033, and June 2053 saw moderate interest, though deal closures were limited. Bullish sentiment drove the average yield down to 16.8%, a 5 bps contraction. Yield declines were observed across the benchmark curve: short-term bonds fell by 5 bps, mid-term by 10 bps, and long-term by 1 bp, propelled by demand for the AUG-2030 (-17 bps), FEB-2031 (-24 bps), and JUN-2053 (-6 bps) bonds.
The rally in Nigerian bonds aligns with broader global trends, where investors are navigating monetary policy shifts. While the Central Bank of Nigeria (CBN) maintains tight liquidity to curb inflation, global central banks, including the U.S. Federal Reserve, are signaling potential rate cuts in 2025, influencing capital flows into emerging markets like Nigeria. Analysts anticipate sustained investor interest in FGN bonds, though rising stop rates and global yield dynamics could temper future gains.
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