In the secondary market, the average yield on the Federal Government of Nigeria (FGN) bond fell somewhat due to a tight supply of the debt asset. Investors are positive on the naira following recent economic progress and hopes that inflation will continue to fall in 20224.
According to Bizwatch Nigeria, the Debt Management Office (DMO) is preparing for its monthly primary market auction, in which it expects to offer extra securities to investors in September.
During the primary market auction, Nigeria’s debt office issued N190 billion in FGN bonds. The amount was substantially lower than the N300 billion lot size forecast across conventional maturities. According to fixed income analysts, this signals a drop in the volume of bond supply.
The lower supply expectation has however triggered decision to purchase government borrowing securities in the secondary market in line with investors’ portfolio plans. The changing market narrative has been reflecting on transaction conducted in the fixed income market.
In the secondary market, trading activities was relatively quiet with pocket of transactions that plunged FGN bond benchmark yield downward. Due to thin trading session albeit with bullish tilt, the average yield declining by 1bp to settle at 18.77%.
Fixed interest securities investors showed buying interest in the APR-29 (-21bps) paper, resulting in average yield at the short end of the curve, declining by 2bps, CardinalStone Securities Limited said in a note.
In August, the local bond market was not left out in the bullish frenzy, according to AIICO Capital Limited report. In addition to the robust system liquidity, the lower headline inflation fostered the expectation for a dovish bond auction.
Eventually, the bond auction was mixed, with only the 5-year paper (April 2029) closing higher at 20.30% (+41bps) compared to the previous auction, while the Feb 2031 and May 2033 papers closed lower at 20.90% (-10bps) and 21.50% (-48bps), respectively.
“Considering all pointers like system liquidity, bond coupon, lower inflation, and lower government borrowing costs, the bullish sentiment should spill into September,” AIICO Capital Limited said.
