Investor sentiment in Nigeria’s fixed income market turned bearish last week, as bond yields spiked across the curve due to profit-taking following the July bond auction. Yields rose by 15 basis points on average, reaching 16.35%, according to data from the secondary market.
The surge in yields was prompted by cautious trading behavior, as investors reassessed their positions amidst evolving expectations on domestic interest rates and constrained support from the primary market. Offers grew more competitive following a higher-than-anticipated auction size, fueling post-auction liquidation.
Cordros Capital reported that yields widened across all maturities—short-term (+8 basis points), mid-term (+34 basis points), and long-term (+3 basis points)—as investors rotated out of their positions.
Specifically, yields on the JAN-2026, FEB-2031, and JUN-2053 bonds climbed significantly, rising by 73 basis points, 59 basis points, and 35 basis points, respectively, highlighting targeted sell-offs along key segments of the yield curve.
At the Federal Government of Nigeria (FGN) bond auction held by the Debt Management Office (DMO) in July, a total of N80 billion in bonds was issued. The offering was evenly split between the 14.55% APR 2029 and 14.70% JUN 2032 maturities.
This represented a notable decrease from previous auctions—N100 billion in June and N300 billion in May—suggesting that the DMO is deliberately reducing supply to avoid further upward pressure on yields.
Despite the limited offering, investor appetite remained tepid. The auction recorded total subscriptions of N300.7 billion, resulting in a bid-to-offer ratio of 1.62x. This marked a steep decline from the June auction, which attracted bids totaling N602.9 billion with a much stronger ratio of 6.03x.
The lukewarm response indicates rising investor caution, likely due to moderated expectations for future yield performance, as well as tightening liquidity conditions in the system.
With risk-adjusted returns becoming more scrutinized, portfolio managers appear to be prioritizing short-term liquidity over long-term exposure to sovereign debt.
Looking ahead, analysts expect this conservative approach to persist in the domestic bond market. The DMO is likely to maintain a measured approach in bond issuance to stabilize yields and reduce volatility, particularly as macroeconomic uncertainty lingers.
The broader fixed income landscape in Nigeria continues to adjust to shifting market signals, including monetary policy dynamics, inflation concerns, and fiscal recalibration, all of which will influence bond investor behavior in the months ahead.
