Nigerian bond yields climbed higher this week as investors moved to take profits following the recent rate cuts that triggered a wave of sell-offs across mid- and long-term government securities in the secondary market.
Investor appetite for Federal Government bonds weakened as the Debt Management Office (DMO) trimmed spot rates on reopened instruments at its latest auction. This downward revision in borrowing rates has stirred cautious sentiment among traders who anticipate a further decline in returns.
At the recent primary market auction, the DMO reduced the stop rate on the 5-year reopened bond to 15.832%, down from 16% recorded in September. Similarly, the 7-year bond’s rate was slashed to 15.85%, compared to 16.20% in the previous auction.
Market observers noted that the rate adjustments signaled government confidence in easing inflationary pressures and aligning borrowing costs with the broader interest rate environment. However, the move also dampened market enthusiasm, as investors reassessed their yield expectations in a softening interest rate climate.
In the secondary market, the cautious mood was evident as traders adopted a bearish stance. Benchmark bond yields rose by 3 basis points, climbing to 15.92% from 15.88% recorded the previous day.
Several maturities faced pronounced sell-offs, particularly the April 2029 (+39 bps), May 2029 (+38 bps), November 2029 (+27 bps), and August 2030 (+10 bps) papers. These movements reflected increased investor repositioning amid concerns that lower auction rates could suppress yields further.
Interestingly, not all segments of the curve moved in the same direction. The 20-Mar-2027 and 17-Apr-2029 instruments saw slight yield declines to 16.01% (-1 bp) and 16.04% (-8 bps), respectively, suggesting selective buying at attractive price points. In contrast, the 28-Apr-2029 and 22-May-2029 papers experienced significant upward yield adjustments of 39 bps and 38 bps, respectively.
Analysts in the fixed-income market told MarketForces Africa that the current sell-off is largely a short-term reaction to the repricing of yields. They expect the bearish momentum to persist as investors adopt a risk-off strategy amid uncertainty surrounding inflation trends and future monetary policy directions.
The analysts added that while the lower rates could help the government reduce its borrowing costs, the development might discourage investors seeking higher returns, especially in an environment where real yields remain compressed due to persistent inflation.
