Yields on Nigerian government bonds edged higher at the start of the week as investor appetite for fixed-income securities weakened, signalling a shift in sentiment amid concerns over declining returns and an increasingly attractive equities market.
The average yield in the secondary bond market rose by 7 basis points to 16.46% on Monday, reflecting broad-based selloffs. According to traders and analysts at MarketForces Research, bearish momentum was driven by investor repositioning away from the debt market amid expectations of continued yield compression and a booming equities environment.
The selloff followed last week’s Debt Management Office (DMO) bond auction, where ₦80 billion was initially offered but ultimately ₦185.93 billion was allotted, thanks to robust subscription levels. Despite strong demand, marginal rates at the auction cleared lower at 15.69% for the 5-year (FGN APR 2029) and 15.90% for the 7-year (FGN JUN 2032), below their respective coupon rates of 19.30% and 17.95%.
This downward repricing has contributed to concerns among both local and foreign investors about the attractiveness of returns, with some analysts warning of potential capital flight—particularly from foreign investors who had earlier converted U.S. dollars to naira to participate in the local debt market.
At the secondary market, pressure was concentrated on the short and mid segments of the yield curve. The APR 2029 and APR 2032 bonds saw significant yield expansions of 34 bps and 42 bps, respectively, with yields climbing to 16.87% and 16.90%. The FGN 2034 paper also recorded an increase to 16.74%, although a separate tranche of the same bond bucked the trend, with its yield falling by 65 bps to 15.60%.
Despite reduced auction sizes compared to previous offerings, total subscriptions reached ₦300.67 billion, though this was significantly lower than the ₦602.86 billion recorded at the prior auction. The latest bid-to-offer ratio stood at 3.76x, while the bid-to-cover ratio came in at 1.62x, underscoring still-resilient demand.
Analysts believe the lower marginal rates may reflect deliberate rate management by the DMO, which appears to be positioning for a continued downward trend in yields to support cheaper government borrowing in the near term.
Nonetheless, with strong liquidity in the financial system and signs of disinflation, investors are becoming more selective. The narrowing yield environment is prompting asset managers to shift focus toward the equities market, where returns have outperformed in recent months.
As this reallocation gathers pace, bond yields may remain under upward pressure, especially if foreign capital begins to exit in search of better risk-adjusted returns elsewhere.
