Investors are showing increased interest in buying bonds in Nigeria’s secondary market, mainly because they are now getting better returns on their investments, even after adjusting for inflation. On Wednesday, bond trading picked up significantly, despite a massive N2.4 trillion investment in Treasury bills.
This renewed interest is largely due to the latest economic adjustments, which have changed the way interest is calculated. Previously, inflation was eating into the profits of investors who put money into fixed-income assets like bonds. However, with Nigeria’s inflation rate at 24.48% and the Central Bank’s benchmark interest rate set at 27.50%, investors are now enjoying a real return of 3.20% on bonds.
For the first time in a long while, interest rates on bonds have risen above the inflation rate. This has made them attractive to asset managers, pension fund administrators, and banks looking for secure and profitable investments.
According to market experts, investors rushed to buy specific government bonds that are still active, particularly those maturing in April 2029, February 2031, and January 2035. Mid-term bonds, such as those set to mature in May 2033, also attracted interest as investors carefully selected bonds offering high returns following the government’s updated inflation calculations.
The increased demand led to a drop in the average mid-term bond yield by 11 basis points (bps), bringing it to 19.92%. Notably, bonds maturing in February 2034 saw a major drop in yield by 87 bps, while the February 2031 bonds saw a 56 bps drop. This suggests that more investors were eager to buy these bonds, which caused their yields to decline due to increased demand.
Analysts expect this trend to continue, especially because interest rates on Treasury bills have also dropped. As a result, investors looking for better returns are likely to focus more on bonds in the coming days, particularly with the upcoming federal government bond auction on Monday.
