Benchmark Interest Rate On Bonds Rises To 19.26%

FGN Bond For Jan. 2021 Oversubscribed

The average yield on Nigerian government bonds has increased following the Debt Management Office’s (DMO) most recent primary market auction (PMA) as a result of quick selloffs in the secondary market.

In advance of the anticipated interest rate hike by the monetary authority, the benchmark yield on government bonds increased by 82 basis points to close at 19.26% on Friday.

Because of investors’ continued risk aversion and the apex bank’s strict control over the amount of money entering the economy, the secondary market has seen sluggish demand for FGN bonds since the year’s beginning, according to analysts.

In an attempt to maximize the profits on their portfolios, bond investors in the fixed income market continued to dump bond securities denominated in naira. Despite the falling currency, negative yields have persisted.

At 31.70% in February, inflation increased from January’s reading by 180 basis points, -mainly driven by a rise in the food index, spurred by naira weakness.

After selling rallies, the average yield increased 23 basis points (bps) to close at 19.21% as government bond selloffs hit the secondary market, continuing a pattern that started the week before.

The yield curves for short- and long-term debt instruments had inverted, but the decision by the central bank to lower interest rates during the treasury bills auction might be influencing future rate movements.

In its market update, Cordros Capital Limited told investors that across the benchmark curve, the average yield increased at the short (+80 bps) and long (+7bps) ends.

Traders noted that market players sold off the MAR-2027 (+171 bps) and APR-2049 (+56 bps) bonds, respectively. Conversely, the average yield closed flat at the mid-segment.

The debt office, which manages Nigeria’s total borrowings, raised interest rates on bonds allocated to investors in the main market on Monday. Nigeria is expected to go to the Eurobond market to sell foreign currency bonds worth $1 billion.

The Debt Management Office disclaimed that it had not received authorisation to issue bonds denominated in US dollars to foreign investors, despite rumours that one of its advisers on the matter was Chapel Hill Denham, an investment firm owned by Finance Minister Wale Edun.

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