Nigerian Bond Investors Sell Naira Assets Ahead Of Inflation

FGN Bond For Jan. 2021 Oversubscribed

After a lackluster primary market auction in front of inflation statistics, the local FGN bonds market concluded on a negative note in the secondary market. Amid market and economic uncertainty, bond investors lost interest in naira assets.

Fixed income traders reported selling interest in certain papers, such as the May 2033 FGN Bonds, the 2038 borrowing notes, and the 2053 papers, on the secondary market.

Additionally, traders stated that there was a lot of trading activity, especially in the instruments for March 25 (+8bps), January 26 (+3bps), and May 33 (+11bps). Consequently, there was a slight increase in the average mid-yield, reaching 18.78%.

Before the bond auction was rescheduled for the final week of the month, the local FBN bonds market was overflowing with a variety of bids.

The FGN bond auction results surprised the market with a significant increase in stop rates. The 2029, 2031, and 2033 maturities were issued at 19.64% (up from 19.29%), 20.19% (up from 19.74%), and 19.89% (up from 16.10%).

Overall, the market settled bearish, and the average mid-yield increased by 198bps m/m to close the month at 20.47%. According investment report by AIICO Capital Limited, FGN bonds market closed bullish in Q2-2024, falling by 10bps quarter on quarter to 18.94% at the end of Q1’24 and 18.84% at the end of Q2’24.

Analysts alluded the slight bullish close for Q2 to the downtrend in stop rates at the auction, particularly the first two auctions in Q2-2024. Despite the recent uptick at the last auction for the quarter, the market settled bullish.

The July auction makes predictions challenging to decipher, said AIICO Capital Limited. However, analysts said they know that the DMO has raised a significant amount from the bond auction in H1 24, worth about ₦4.13 trillion and at a very high cost.

“Even though the DMO keeps pace with the uptrend in rates, we expect the allotted size to reduce gradually”, the report stated.

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