The average yield on Federal Government of Nigeria (FGN) bonds has dropped 32 basis points to around 18.6% in the secondary market due to demand for these bonds, according to dealers’ independent reports.
Investors in secondary fixed interest instruments were encouraged to purchase bonds due to the favorable feeling generated by the ratings improvement on Nigeria’s economy.
The most recent Fitch ratings update, which raised Nigeria’s outlook from stable to positive, coincided with an uptick in demand for Naira assets. The growth estimate for 2024 was also modified by the International Monetary Fund, or IMF, to exceed 3%.
Although important macroeconomic factors indicate otherwise, Fitch, the IMF, and other international rating agencies have voiced optimistic views of Nigeria’s reform. The economy has been under strain due to several policies that are having an immediate detrimental effect on citizens.
Despite this, institutional investors and managers of pension funds have been increasing their wagers on Naira assets due to its double digit yield, which has remained stable since 2024.
Investors in the Nigerian bond secondary market raised their portfolio holdings by pouring more money into FGN bonds over a longer period of time in response to the recent rating upgrade.
Then, average yield declined by 32bps to 18.59% ahead of Debt Management Office (DMO) primary market auction schedule for May. Across the benchmark curve, buying interests were seen at the mid (-8bps) and long (-57bps) segments of the curve.
Traders reported that across the benchmark curve, the average yield inched higher at the short (+1bp) end following profit-taking activities on the MAR-2025 (+2bps) bond. However, yield dipped at the mid (-8bps) and long (-57bps) segments due to buying interest in the FEB-2031 (-26bps) and JAN-2042 (-110bps) bonds, respectively.
“We expect players in the bonds market to continue to reshuffle their holdings in preparation for this month’s FGN bond auction scheduled to hold on 13 May and thus, anticipate activities will remain subdued in the meantime.
“Over the medium term, we expect yields to remain elevated, driven by the anticipated monetary policy administration globally and domestically and sustained imbalance in the demand and supply dynamics”, Cordros Capital Limited said in a note.
