As the market responded to the spike in inflation, the average yield on local bonds issued in Nigeria increased somewhat. According to the statistics office, the rate of inflation increased by 24 basis points from 33.95% in May to 34.19% in June.
According to analysts, rising inflation has now narrowed the difference between the monetary policy rate and the consumer price index to 7.94%. In the fixed-income market, investors’ real return on their portfolios has stayed muted.
The market has been looking for inflation-protected investment options for a while, but the absence of alternatives and the requirement from regulations for pension fund administrators to participate in government securities have made rate pricing negotiation less common.
With more than N20 trillion in pension assets, investment in FGN securities accounted for more than 63% as of May 2024, reducing the value of returns to pensioners.
The rising inflation surge triggered bond selloffs in the secondary market, with the yield curve shifting upward ahead of the rescheduled primary market auction.
The Debt Management Office notified the market about its decision to shift the July bond auction. In a notice, the DMO said it has rescheduled the FGN bond auction from July 15 to July 22.
“Due to unforeseen recent developments, the Debt Management Office is constrained to shift its July 2024 Federal Government of Nigeria (FGN) bond auction, earlier scheduled for July 15, 2024, to July 22, 2024,” the notice said.
At the beginning of the week, traders reported that trading activity in the secondary FGN Bonds recorded negative activity, resulting in a 0.03% increase in the average yield to 19.29%.
Across the benchmark curve, the average yield increased at the short (+15bps) end as investors sold off the MAR-2025 (+70bps) bond but was unchanged at the mid and long segments, according to Cordros Capital Limited.
