The yields on Nigerian bonds have decreased due to heightened purchasing activity in the secondary market, particularly targeting shorter maturities. Many investors are turning to secondary market purchases after unsuccessful bids in recent auctions. Interest in local debt instruments has grown significantly, driven by inflation concerns, as the benchmark interest rate exceeds inflation for the first time in years.
The yield on Nigerian bonds has declined, reflecting the strong purchasing activity in the secondary market, where investors are primarily targeting short to mid-term maturities. Many investors who were unable to secure their desired bonds during the recent primary market auction are now turning their attention to secondary market acquisitions, which is expected to further reduce yields, according to analysts.
Investor interest in domestic debt instruments has surged, prompted by the need for inflation protection in naira-denominated investments. The recent rise in Nigeria’s benchmark interest rate, now exceeding the inflation rate, has concluded a prolonged period of negative interest earnings for investors that persisted over the past four years.
Coronation Research reports, “Over a four-year period, the Nigerian government T-bill and bond yield curve has changed from an upward slope to a downward one.” The overall market interest rates have increased across all durations in the past four years, with expectations of continued decline in bond yields through 2025 as investors seek to capitalize on profits from these investments.
On Wednesday, substantial bids were observed at the shorter end of the yield curve (-53 basis points), where investors accumulated significant amounts of FEB-28, APR-29, and MAY-29 securities. This robust demand has effectively lowered yields on key bonds, including those maturing in April 2029, February 2031, May 2033, February 2034, and January 2035.
Market participants noted that the yield on the 2031 bond decreased by 10 basis points, closing at 18.40%, due to persistent demand. As a result of this ongoing bullish trend, the average benchmark yield fell by 22 basis points, settling at 18.86%.
In summary, the decline in Nigerian bond yields can be attributed to increased buying activity in the secondary market, particularly from investors seeking to enhance their portfolios after unsuccessful bids in the primary market. The rise in domestic borrowing interest also highlights the shift in the yield curve and investor sentiment towards naira assets as they adapt to changes in inflation and interest rates.
Original Source: dmarketforces.com
