The yield on Nigerian bonds has declined due to intensified buying in the secondary market, particularly among investors focusing on short-to-mid tenors. This shift is a reaction to recent changes in Nigeria’s benchmark interest rate surpassing inflation, marking a potential trend in bond investments as yields decrease in response to increased demand.
The benchmark yield on Nigerian bonds has experienced a decline, driven by increased buying activity in the secondary market, particularly for short-to-mid tenors. Investors who were unsuccessful in recent primary market auctions are now focused on enhancing their portfolios through secondary market transactions, which is anticipated to further reduce yields, according to market analysts.
Interest among investors in domestic borrowing instruments has surged, primarily due to their protective value against inflation within naira asset investments. Nigeria’s benchmark interest rate has recently risen above inflation, marking the end of the negative interest yields that investors have endured over the past four years.
Coronation Research indicates, “Over a four-year period, the Nigerian government T-bill and bond yield curve has changed from an upward slope to a downward one.” As interest rates have escalated across all durations, including the outlook for 2024, the market prices for Federal Government of Nigeria (FGN) bonds have experienced a decline.
Bonds with longer maturities have shown the most sensitivity to these market shifts. Analysts predict that bond yields will continue to fall in 2025 as investors seek to secure profits through these assets. Recent trading on Wednesday revealed aggressive bid activity, particularly in the short end of the curve, which resulted in notable yield reductions across various critical bonds.
This demand has had a definitive impact, driving down yields on significant bonds such as those maturing in April 2029, February 2031, May 2033, February 2034, and January 2035. Noteworthy movements included the 2031 bond, which saw a decline of 10 basis points, closing at 18.40%, attributed to sustained investor demand. Consequently, the average benchmark yield decreased by 22 basis points to 18.86%.
In summary, the downward trend in yield on Nigerian bonds reflects increased investor activity in the secondary market, particularly among those unable to secure purchases in the primary market. This phenomenon, fueled by rising interest rates, positions investors favorably against inflation. As yields continue to drop, bond markets may experience further adjustments, signaling a changing landscape for bondholders in Nigeria.
Original Source: dmarketforces.com
