Nigeria’s Bond Yield Peaks At 12.81% As Inflation Falls

FGN Bond For Jan. 2021 Oversubscribed

The average yield on Nigerian government bonds increased slightly to 12.81% on Monday as a result of secondary market selloff pressures, although the headline inflation rate for December 2022 dropped to 21.34%, according to the statistics office.

In contrast to the forecast of increasing domestic borrowings in the local debt capital market, several analysts have been positive on a potential upward change in the yield curve, particularly in the first half of the year.

Despite a sizable budget deficit for the fiscal year 2023, Nigeria’s debt management agency (DMO) has yet to announce its schedule for bond auctions. It is anticipated that the yield would increase because of the abrupt change in monetary policy direction that occurred in the middle of 2022. At the end of the year, though, yields started to decline.

According to Meristem Securities Limited, the outlook for fixed income yields in 2023 is for them to rise, albeit gradually. The reason for this, according to Meristem, is due to the offsetting effects of the anticipated higher FGN borrowings as a result of the anticipated higher budget deficit, as well as the anticipated high system liquidity from coupon payments and bond maturities, particularly in the first half of the year.

Additionally, Asset/Fund managers informed MarketForces Africa that given the tight market circumstances following a sustained hawkish pose by the United States Federal Reserves.

Global bankers increased benchmark interest rates in 2022 to combat market pressures caused by growing inflation rates, encouraging money to go to places where it is treated properly.

According to Cowry Asset Management Limited, the prices of government securities remained practically unchanged for the majority of maturities in the secondary market for trading the FGN bond market.

Due to local fund managers selling off a portion of their portfolio, the average secondary market yield increased by 3 basis points, dealers informed investors in an email seen by MarketForces Africa, and the yield dropped to 12.81%.

A significant selling rally in the local debt capital market caused the yield on the 20-year debt to fall by 65 basis points, or 0.65%, to 14.83%. The rates on the 10-year FGN bond, nonetheless 15-year FGN Bonds, and 30-year FGN bonds were steady at 12.24%, 13.50%, and 14.55%, respectively, according to traders’ notes.

According to Cordros Capital analysts, the average yield increased at both the short (+7bps) and long (+2bps) ends of the benchmark curve. Fixed interest income investors were said to have sold off the MAR-2025 (+29bps) and APR-2049 (+15bps) bonds, respectively, although the segments finished flat.

In other markets, the FGN Eurobond’s value rose for the majority of the monitored maturities despite persistent optimistic sentiment, according to experts at Cowry Asset. As a result, the average secondary market yield decreased slightly to 10.30% by 3 basis points.

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