Investors Purchase Nigerian Bonds, Yield Fall To 18.67%

In the secondary market, the benchmark yield on Federal Government of Nigeria (FGN) bonds decreases by 2 basis points to around 18.7%. Following an increase in inflation in April, the interest rate on municipal debt notes increased in tandem with an expanding actual return on investment.

Despite shifting market conditions, trading activity on the local debt note has still continued to soar. In an effort to counteract the growing consumer price index, the apex bank lifted the benchmark interest rate to 26.25% in April, even as inflation increased to 33.69%.

Pension fund administrators, who are mandated by law to invest in government borrowing interest, have been the main proponents of the demand for local bonds. Amid mounting concerns about the economy, investment experts advise risk-averse individuals to invest in government bonds.

 The tield in the fixed income market inverted as the Central Bank of Nigeria (CBN) continue to offer higher spot rates on short dated bills. This comes in stark contrast with Debt Management Office subdued rates on government bonds.

Last week, investors parked funds into JAN-42 FGN Bonds and JUL-45 bond instruments, traders said in their market update. This movement caused the average secondary market yield to decline slightly from the previous day’s close of 18.67%.

A total of 82,778 units of bonds valued at N80.570 million were traded this week in 18 deals compared with a total of 9,282 units valued at N8.945 million transacted last week in 24 deals, Cedrus group said in a note.

In its note, Cordros Capital Limited told investors that the average yield advanced at the short end (+4bps) as investors sold off the MAR-2025 bond (+12bps) but closed flat at the mid segment. Meanwhile, the average yield contracted at the long end (-9bps) following demand for the JAN-2042 bond (-59bps).

“We envisage yields in the FGN bonds secondary market is poised to increase in the near term following the 150bps hike in the monetary policy rate to 26.25% by the monetary authorities in its effort to rein in inflationary pressures”, the investment firm told investors.

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