The pursuit of high-yield investment opportunities by investors has resulted in portfolio rebalancing and adjustment, notwithstanding Nigeria’s deteriorating inflation situation. Due to a persistent lack of confidence in local borrowing instruments, the average yield on Federal Government of Nigeria (FGN) bonds surged by 23 basis points last week in the secondary market.
In the face of low interest rates on local bonds, investors in fixed interest instruments embarked on a pessimistic investing trip, moving their money abroad in pursuit of an inflation-protected return. The Debt Management Office’s (DMO) bond auction was significantly undersubscribed due to a persistently negative interest rate in a context of rising inflation, which was indicative of investors’ disinterest.
During the main market auction, the DMO reopened the 19.30% FGN APR 2029 bond and the 18.50% FGN bond, providing investors with instruments valued at N450.00 billion.
Notably, the auction recorded weak demand as total subscription level settled at N305.26 billion with a bid-to-offer ratio of 0.7x. Eventually, the DMO allotted instruments worth N297.01 billion across the three tenors, resulting in a bid-to-cover ratio of 1.0x.
According to the auction result, 5-Year bond was sold at 19.64%, 35 basis points above previous auction rate. Also, a 7-Year FGN bond was sold at 20.19%, which was 45 basis points above previous auction rate, while 10-year bond attracted 21.50%, 161 basis points above previous auction spot rate.
In the secondary market, trading activities were bearish as investors offloaded naira assets. Overall, the local bonds market closed bearish, with the average mid-yield rising by 23 bps to 18.84%, according to AIICO Capital Limited.
Across the benchmark curve, Cordros Capital Limited said the average yield increased at the short (+6bps) and long (+1 bps) ends. The yield surge was a results of selloff activities on the MAR-2025 FGN bond, causing its yield to rise by +13 bps and JUN-2053 by +10bps bps, respectively.
However, the average yield dipped at the mid (-70bps) segment due to demand for the JUN-2033 (-155bps) bond.
