Prior to the Debt Management Office (DMO) auction, the average yield on Federal Government of Nigeria (FGN) bonds dropped six basis points the week before, ending at 18.77%.
Despite growing inflation and increased interest in the fixed income market, trading activity in the secondary market has remained muted. As the debt office tightens spot rates on bond sales in the primary market, investors continue to earn negative returns on their naira assets.
AIICO Capital Limited stated in its market update that, but less strongly, the market opened on the bearish side. Analysts noted that as the week came to an end and traders got ready for Monday’s bond auction, the market shown some composure.
Notably, the market experienced buying interest in the mid-segment of the curve. CardinalStone Securities Limited said in its update that there were bids on the Apr-29 FGN bonds and May-29 papers.
Thus, yields on these FGN borrowing instruments contracted by 30bps and 26bps to close at 18.54% and 18.66%, respectively on Friday.
Market players in the secondary market also exited their short and long positions, while huge demand was recorded on the privately issued MAR-2027 (-100bps) bond, Cordros Capital Limited told investors in its market update.
As a result, analysts noted that the average yield increased slightly to 18.8%. Across the benchmark curve, it noted that the average yield expanded at the short (+6bps) and long (+14bps) ends.
The yield expansion was driven by profit-taking activities on the JAN-2026 (+20bps) and JUN-2038 (+96bps) bonds, according to fixed interest securities analysts.
Conversely, the average yield declined at the mid (-9bps) segment due to interest in the APR-2032 (-16bps) bond, Cordros Capital Limited told investors in its market update.
According to auction calendar, the DMO is set to offer instruments worth N450.00 billion through re-openings of the 19.30% FGN APR 2029, 18.50% FGN FEB 2031 and 19.89% FGN MAY 2033 bonds.
Analysts predict despite its subdued spot rates, demand would come strong as investors seek investment options to reduce their exposure to accelerating inflation.
AIICO Capital Limited expects the outcome of the FGN local bonds auction to dictate market activities in the new week.
“We believe the outcome of this month’s FGN bond auction holding on Monday will influence the direction of yields in the secondary market”, Cordros Capital Limited seconded.
The investment firm maintains its medium-term expectation of elevated yields consequent to anticipated monetary policy administration globally and domestically, and sustained imbalance in the demand and supply dynamics.
