DMO auction sees Bond yield ascend to 16.7%

Agency Report

The average yield on Federal Government of Nigeria (FGN) bonds increased slightly following soft but bearish trading activities in the secondary market.

The trading pattern reflected a tight liquidity position in the financial system as banks have the option to sell down their investment in government debt securities to finance operations.

Deposit money banks have been on a borrowing spree at a higher standing lending facility rate from the CBN borrowing window, which analysts said would not only impact their cost of funds but also their cost-to-income ratio.

Traders told MarketForces Africa in their separate reports that activity in the secondary market for FGN bonds was subdued, but mild profit-taking activities across the curve caused benchmark yield to decline by 15 basis points to 19.69%.

At the primary market auction on Monday, the Debt Management Office (DMO) sold about N211.15 billion across two maturities, with marginal rates of 21.15% (APR 2029) and 22.00% (FEB 2031), respectively.

There was minimal trading on the February 2034 bond and sideways interest in the April 2029 bond, AIICO Capital Limited told investors in a note.

Some asset managers and banks sell down their holdings as liquidity deficits persisted in the money market. Market analysts said transactions were concentrated at the short and long ends.

The Apr-29 auction bond saw yield rise by 5 bps, closing at 20.20%, TrustBanc Financial Group said in a note. Amidst the bearish sentiment, the longer-dated auction paper Feb-31 managed to defy the trend, shedding 2 bps to settle at 21.95%, fixed income market analysts added.

Fixed income market analysts said the average yield expanded at the short (+29 bps) and mid (+1 bps) segments. The yield expansion was driven by profit-taking activities on the APR-2029 (+143bps) and JUL-2030 (+42bps) bonds, respectively, but closed flat at the long end.