Nigeria’s Debt Management Office (DMO) is offering federal government instruments worth N225 billion through re-openings of four long-tenor bonds at rates that markets analysts believe are likely to influence the sentiments in the secondary market this week.
On Monday, January 30, the Office will reissue the FGN FEB 2028 bond at a 13.98 percent interest rate while the FGN APR 2032 will be offered at 12.50 percent interest. The FGN APR 2037, and FGN APR 2049 bonds will be offered at 16.25 percent and 14.80 percent rates respectively.
“We expect the frontloading of significant borrowings for the year by the FG to result in an uptick in bond yields in the medium term, as investors demand higher yields in the face of elevated supply,” research analysts at Cordros Securities noted pointing out that it would influence the sentiments in the secondary market.
Despite a 100 basis points hike in benchmark interest rate to 17.5 percent by the Central Bank of Nigeria (CBN) on Tuesday, yields contracted across markets last week as demand surged, amplified by higher system liquidity which closed at N837.61 billion compared to N381.23 billion in the previous week.
The ample system liquidity was tempered by inflows from FAAC allocation (N614.88 billion), FGN bond coupon payments (N167.51 billion), and OMO maturities (N40 billion).
Average yield contracted by 31 basis points week-on-week (w/w) to 13.1 percent as rates for the MAR-2024 (-280bps) and MAR-2050 (-7bps) bonds declined respectively. As for the secondary market for FGN bonds, the average yield increased by 64bps to close at 13.4 percent w/w. However, the rate of return on FGN 20-year bonds rose sharply to about 15 percent.
A slowdown in demand for Nigeria’s 20-year bond pushed the yield higher, thus reducing the immediate effects of higher interest rates on holdings in the segment. The bearish tone on the paper was pushed by rapid sell orders executed by funds and asset managers to balance their portfolios.
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Meanwhile, the prices of bonds remained relatively flat for most maturities, according to fixed-income analysts’ market briefs. This kept yields at the end of the curve steadied. Overall, the average secondary market yield compressed by 13 basis points to 13.22%.
Across the benchmark curve, Cordros Capital analysts stated that the average yield dipped at the short (-34bps) and long (-7bps) ends due to investors’ interest in the APR-2023 (-133bps) and APR-2037 (-47bps) bonds, respectively.
Conversely, the average yield closed was unchanged at the mid-segment, according to market traders and fixed-income analysts.
Traders at Cowry Asset Management hint that the FGN 20-year bond was richer by 305 basis points at 14.87 percent. Meanwhile, the yields on the 10-year, 15-year, and 30-year bonds stayed steady at 13.37 percent, 14.58 percent, and 14.96 percent, respectively.
Elsewhere, the value of the FGN Eurobond decreased for most of the maturities tracked amid renewed bearish sentiment. Notably, the average secondary market yield increased to 10.77 percent, Cowry Asset told clients.
The Treasury bills secondary market remained bullish during the week under review, as the average yield across all instruments dipped by 160 basis points to 1.8 percent. The CBN offered instruments worth N220.53 billion – N1.74 billion for the 91-day, N1.26 billion for the 182-day, and N217.53 billion for the 364-day bills.
At the treasury bill primary auction last week, demand was strong as the total subscription level hit N959.39 billion compared to the offer of N220.53 billion. But the CBN allotted precisely what was offered – at respective stop rates of 0.29 percent (previously: 2 percent), 1.80 percent (previously: 4.33 percent), and 4.78 percent (previously: 7.30 percent).
Demand was skewed toward the longer-dated bills (N860.35 billion translating to 89.7 percent of the total subscription).
