Nigerian bond yields have fallen due to increased investor interest in the secondary market for short-to-mid tenor securities. Following missed bids in the primary auction, investors are aiming to strengthen their portfolios, contributing to a decrease in yields. The shift in yields reflects changes in interest rates and inflation concerns affecting naira investments.
The benchmark yield on Nigerian bonds has experienced a decrease as buying interest surged in the secondary market, especially for short-to-mid tenor securities. Investors who were unsuccessful in the recent primary market auction are now actively seeking to enhance their portfolios through secondary market acquisitions, which is expected to further lower yields, according to analysts.
A significant uptick in investor interest for local debt instruments has been observed, largely due to inflation concerns influencing naira asset investments. Recently, Nigeria’s benchmark interest rate exceeded inflation, thereby alleviating the negative interest yield scenario that had persisted for the last four years.
Coronation Research noted, “Over a four-year period, the Nigerian government T-bill and bond yield curve has changed from an upward slope to a downward one.” This indicates a significant transformation in the yield curve due to rising market interest rates across all durations and a corresponding decline in the mark-to-market prices of Federal Government of Nigeria (FGN) bonds.
The longest-dated bonds have shown the greatest susceptibility to price shifts, as indicated by forecasts of declining yields in 2025. Analysts expect that the ongoing practice of locking in profits will continue to influence the performance of Nigerian bonds in the coming period.
On a recent Wednesday, aggressive bidding dynamics were observed, particularly affecting the short end of the curve, with yields decreasing by 53 basis points. Key bonds, including those maturing in April 2029, February 2031, and May 2033, saw notable demand, further reducing their yields.
Traders highlighted that substantial movement occurred in the 2031 bond, which decreased by 10 basis points to close at 18.40%, demonstrating consistent demand. As a result of this demand surge, the average benchmark yield declined by 22 basis points, settling at 18.86%.
In conclusion, the decline in Nigerian bond yields is predominantly driven by increased investor activity in the secondary market, particularly among those seeking to compensate for missed primary market opportunities. The recent dynamics highlight a shift in interest rates and inflation, fostering a conducive environment for bond investments. Analysts foresee ongoing trends that may further influence yield levels in the near future.
Original Source: dmarketforces.com
