The average yield on Federal Government of Nigeria (FGN) bonds increased by a basis point to 14.47% on Tuesday, despite a weak trading volume in the secondary market and a racing headline inflation rate.
Fixed interest securities investors drew back as most bond paper prices remained steady as an untamed hot red headline inflation rate of 26.72% in September 2023 disclosed a return on naira assets, according to traders.
In comparison to the level of inflation, government bond yields remain a poor investment for those looking to reduce their exposure to inflation. The Nigerian government is borrowing below the market rate in the bond market, with spot rates on papers priced lower.
As Nigeria received a $1.5 billion loan from the World Bank to boost government finances, the market considered the government’s reaction to deteriorating macroeconomic conditions. According to CardinalStone investment experts, bond instruments had sell-offs on the June 2053 paper, with a yield increase of 24 basis points to 16.55%.
The FGN bond secondary market was calm last week, with the average yield remaining at 14.4%. Analysts noted the average yield on the benchmark curve fell at the short end (-1bp) due to interest in the MAR-2024 (-3bps) bond.
Meanwhile, according to fixed income market experts, the average yield in the mid and long segments closed flat. Due to healthy liquidity levels that continue to pull financing rates lower, selloffs on key naira assets have stalled.
Pension and fund managers held to naira assets despite the fact that the consumer price index worsened, and analysts said currently, there is no end in sight. Key reforms undertaken is having negative impacts on economic performance.
Yesterday, activity was on a cautious thread, as the value of the plain vanilla closed flat for all maturities. Traders said there was mixed sentiment across the market which kept the average yield in the bond market mildly positive.
In Nigeria’s Eurobonds market, there was sustained bearish momentum across all maturities at the start of the week, characterized by the declines in the value of the Sovereign FGN instrument. Meanwhile, the average secondary market yields closed negative by 9bps primarily driven by sell sentiment.
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