The secondary market’s trading activity for FGN bond instruments came to an end on a negative note as investors started including an increase in interest rates into their expected return.
Numerous fixed-income traders reported that the bond market was calm in their individual comments. Local investors that participated in the primary bond auction at the beginning of the week got full allotment on their bids.
This resulted in a decrease in secondary market trading activity following the adjustment of spot rates on government borrowing instruments. The average yield then increased by 4 basis points to 19.5%, as disclosed in an email note to investors by Cordros Capital Limited.
Traders said that the average yield increased in the short (+5 bps), mid (+4 bps), and long (+5 bps) segments across the benchmark curve. Profit-taking actions on the JAN-2026 (+15bps), JUN-2033 (+15bps), and MAR-2050 (+45bps) bonds, respectively, were the main cause of the yields’ increase.
During the primary market auction on Monday, the DMO reopened the 19.30% FGN APR 2029, 18.50% FGN FEB 2031, and 19.89% FGN MAY 2033 notes, providing investors with instruments valued at N300.00 billion.
In comparison to the previous auction, the stop rates for the 2029, 2031, and 2033 papers closed at 19.89% (+0.25%), 21.00% (+0.81%), and 21.98% (+0.48%), respectively. The 5-year FGN bond was sold for 19.89%, the 7-year bond was valued at 21%, and the 10-year bond drew a spot rate of 21.98%.
According to investment banking firms, the amount bet on FGN bond issuance at the auction remained soft as total subscription level settled lower at N279.66 billion from N305.26 billion achieved at the previous auction with a bid-to-offer ratio of 0.9x.
Auction results showed that the DMO allotted instruments worth N225.71 billion across the three tenors, resulting in a bid-to-cover ratio of 1.2x
Analysts said that given the demand trend witnessed in the FGN bonds secondary market in the past few weeks, we envisage a sustained rise in yields in the near term as investors remain on the sidelines due to the relatively lower yields.
“While we maintain our medium-term expectation of yields remaining elevated consequent to anticipated monetary policy administration globally and domestically
“…and sustained imbalance in the demand and supply dynamics, we envisage that we are nearing the peak of yields during the cycle, despite the still significant borrowing profile expected over H2-24”, Cordros Capital Limited said in its note.
