Declining Yields on Nigerian Bonds Amid Increased Investor Holdings
Nigerian bond yields have declined due to increased purchases in the secondary market, particularly by investors focusing on short-to-mid term tenors. This shift follows a primary market auction, with renewed interest attributed to inflation coverage and increased benchmark rates. Analysts predict continued declines in yields as investors lock in profits, especially in long-dated bonds, leading to an overall decrease in average benchmark yields.
The decline in yields on Nigerian bonds is indicative of increased buying momentum within the secondary market as investors actively pursue short-to-mid tenor investments. Following a primary market auction in which many investors were unsuccessful, there is a heightened eagerness among them to enhance their portfolios through secondary market acquisitions. Analysts suggest this trend is likely to further decrease yields.
The renewed interest in local debt instruments arises partly from the inflation coverage provided by naira investments, particularly as Nigeria’s benchmark interest rate has recently surpassed inflation levels. This situation has transformed what used to be negative real yields over the past four years into a more favorable investing environment.
Coronation Research highlights a significant shift in the yield curve of Nigerian government T-bills and bonds, which has changed from an upward slope to a downward one over four years. This shift reflects the rising market interest rates across all durations, with the mark-to-market prices of FGN bonds experiencing declines as a result.
The long-dated bonds have proven particularly sensitive to these changes. Analysts forecast a continued decline in bond yields throughout 2025 as investors capitalize on current profits. Recent aggressive buying patterns, especially at the shorter end of the curve, have led to notable reductions in yields for key bonds, such as those maturing in 2029 and 2031.
On Wednesday, significant interest was observed in short-term bonds, with yields on various papers falling due to investor accumulation. For instance, the yield on the 2031 bond dropped by 10 basis points, while the average benchmark yield decreased by 22 basis points, settling at 18.86%. This sustained demand underscores the resilience and attractiveness of Nigerian bonds in the current market.
In summary, the yields on Nigerian bonds are experiencing a downward trend primarily fueled by increased investor activity in the secondary market. The shift towards securing investment in naira assets, coupled with the positive turnaround in real yields, has attracted attention. Analysts predict this trend will continue to lower yields further as market conditions evolve.
Original Source: dmarketforces.com