Trading in the secondary market for Federal Government of Nigeria (FGN) bonds finished on a quiet note as investors assessed the impact of interest rate increases on their portfolios.
The market remained sluggish as investors sold the MAR-25 and JAN-26, causing yields to rise by 2bps and 1bp, respectively, according to dealers at Cowry Asset Management Limited.
However, the average yield stayed at 18.6%, while the central bank boosted the monetary policy rate to 26.25% to combat inflation, which surged to 33.69% in April.
Cordros Capital Limited said in a report that the average yield climbed marginally at the short end (+1bp), led by sale pressures on the MAR-2025 FGN Bonds (+2bps). However, yields were flat in the mid and long sectors.
In their response to benchmark interest rate hike, analysts said they believe the outcome of this meeting may trigger further rounds of bearish sentiments across the mid-to-long end of the yield curve.
“Expect tomorrow’s Nigerian Treasury bills auction on Wednesday to give more clarity on the direction of yields in the secondary market”, Cordros Capital said in a post monetary policy committee meeting note.
Fixed income analysts advise investors to remain cautious about investing in long-duration instruments, which currently may not offer fair compensation for the risks of rising rates.
“We maintain our expectations that yields in the fixed-income market are bound to increase further from current levels. Our prognosis is further buoyed by the expectation of a sustained imbalance in the supply and demand dynamics in the fixed-income market”, Cordros Capital stated.
At this month’s bond PMA, the DMO offered instruments worth N450.00 billion to investors through two reopening and new issuance.
The auction was oversubscribed as the total subscription level settled at N551.32 billion while DMO allotted bonds worth N682.07 billion across the three instruments, resulting in a bid-to-cover ratio of 0.8x. The market value non-competitive allotments at N301.30 billion.
DMO sold 19.30% FGN APR 2029 bond at the rate of 19.29% and 18.50% FGN FEB 2031 bond at the stop rate of 19.74% – both of which are reopening bonds. In addition, the debt office also issued new FGN MAY 2033 bond at the spot rate of 19.89%.
