According to a bevy of specialists, the average yield on Federal Government of Nigeria, FGN, bond instruments jumped to 14.3% in the recent past as the market re-priced fixed interest securities assets, following monetary policy tightening.
Despite rising spot rates, the debt management office’s prior Bond auction subscription level was squeezed due to tightening financial system liquidity and authorised dealers’ discount window access.
As a result, trading activity has been sluggish in some market sectors, while some dealers have rebalanced their portfolios as part of their efforts to maximize profits.
Market experts and fixed income asset dealers reported seeing sell pressure on the medium and long ends of the yield curve as average yields jumped 16 and 33 basis points, respectively.
The Federal government’s aim to securitize the N20 trillion overdraft secured from the Central Bank of Nigeria’s ways and means window indicates that further issuance is likely in the second half of the year.
Despite this, several market experts and traders informed MarketForces Africa over the weekend that securitization may not be achievable in 2022 due to the necessary requirements.
Analysts believe that if carried out in the fourth quarter, certain corporate issuance may be impacted, potentially squeezing out private sector players in the Nigerian debt capital market – especially given the issuance of big tickets instruments.
According to dealers, secondary market sale pressures raised the yield curve. As a result, the 15-year 12.50% FGN MAR 2035 bond, 20-year 16.25% FGN MAR 2037 debt, and 30-year 12.98% FGN MAR 2050 instrument debt each lost N4.39, N2.65, and N2.37, respectively.
However, their respective yields increased to 14.95% (from 14.10%), 16.09% (from 15.71%), and 15.00% (from 14.60%). On the other hand, the 10-year, 16.29% FGN MAR 2027 bond gained N0.29, and its yield declined to 14.25% (from 14.35%).
“In the medium term, we maintain our expectation of an uptick in yields in the bonds market, as both the FGN’s borrowing plan for 2022 and the expected fiscal deficit point towards an increased supply”, Cordros Capital said in a market note.
Trading activities in the secondary market closed the week on a bearish note as investors continued to re-price bonds upwards. As a result, the average yield across all instruments expanded by 16 basis points to 14.3%.
Across the benchmark curve, Cordros Capital analysts said the average yield contacted at the short (-26bps) end due to investors’ buying interest on the APR-2023 (-234bps) bond. READ: Yields Uptrend Back Down as CBN Repriced Spot Rates
It then expanded at the mid (+14bps) and long (+48bps) segments following profit-taking activities on the NOV-2029 (+19bps) and APR-2049 (+126bps) bonds, respectively. #Yield Hits 14.3% as Market Re-priced Bonds
This is good news for investors. Let’s see how other instruments perform.