The average yield on Federal Government of Nigeria (FGN) bond instruments increased slightly to 14.5% as a result of investors’ portfolio reorganization in response to the apex bank’s decision to postpone the monetary policy meeting indefinitely.
The Central Bank of Nigeria has stated that the monetary policy committee meeting has been postponed indefinitely due to increased uncertainty in macroeconomic performance. The CBN has lost touch with important growth indicators, while the naira has lost its luster as a result of exchange rate pressures.
The continuous rise in Nigeria’s headline inflation rate has obscured the true return on naira asset investment, as investors continue to earn inflation-exposed returns in the fixed income market. This is despite the fact that Nigeria is now functioning in a high interest rate environment as a result of a move into a hawkish pose in the second quarter of 2022.
Despite the monetary policy tightening, the consumer price index has continued to worsen, reducing the purchasing power of the naira. In the secondary market, trading activities ended on a bearish note last week, driven by tepid demand as investors adopted a wait-and-see approach to the direction of the benchmark interest rate.
Consequently, the average yield expanded by 8 basis points to 14.5%. Across the benchmark curve, analysts at Cordros Capital reported that the average yield advanced at the short (+30bps) and mid (+5bps) segments.
The trend was attributed to profit-taking activities on the MAR-2024 (+155bps) and APR-2032 (+12bps) bonds, respectively. Conversely, the average yield contracted at the long (-1bp) end following demand for the JUN-2053 (-15bps) bond.
“Over the medium term, we expect yields in the FGN bond secondary market to remain elevated, driven by the sustained imbalance in the demand and supply dynamics”, analysts said. The investment firm highlighted the deliberate actions by the DMO to keep borrowing costs moderate and remain a downside factor.
DMO Raised N4.3trn
The Debt Management Office (DMO) generated more money than expected through the sale of Federal Government of Nigeria (FGN) bonds in a primary market auction. In 2023, the DMO planned to raise a maximum of N3.6 trillion through FGN bonds by the end of the third quarter.
According to experts, the debt office has raised N4.3 trillion following its low-subscribed auction sales in August, surpassing its borrowing target by 19.4%. According to Coronation Research, based on current market conditions, the domestic borrowing target of N7.04 trillion for 2023 would most certainly be surpassed.
According to market analysts, local bond prices will trade modest as the market seeks a catalyst for optimistic mood in the face of an expected pressure in financial markets.