Investment in Nigerian bonds is increasing, leading to a decline in yields as traders shift focus to the secondary market amidst rising inflation. The benchmark interest rate surpassing inflation has revived interest, with analysts predicting further drops in yield as 2025 approaches.
The yield on Nigerian bonds has experienced a decline, primarily influenced by increased buying activities in the secondary market. Investors, notably those who did not succeed in recent primary market auctions, are turning their focus towards acquiring bonds in the secondary market, which is expected to further drive yields lower.
In light of rising inflation affecting local assets, there has been a noticeable uptick in investor interest in Nigerian bonds. The benchmark interest rate in Nigeria recently exceeded inflation rates, marking a shift away from the negative returns that investors have endured over the past four years.
According to Coronation Research, the yield curve in the Nigerian government’s T-bills and bonds has evolved from an upward trajectory to a downward one over this period. Despite overall rising market interest rates, the mark-to-market prices of FGN bonds have seen a decline, particularly impacting the longest-dated bonds.
Analysts forecast a continued decline in bond yields in 2025 as investors seek to capitalize on profits. Recent trading activity identified aggressive bids at the shorter end of the curve, resulting in significant accumulation of bonds maturing in February 2028, April 2029, and May 2029, pushing yields lower across key instruments.
Significant movements included the decline of the 2031 bond, which fell by 10 basis points to close at 18.40%. As a result of sustained demand in the market, the average benchmark yield decreased by 22 basis points to a closing mark of 18.86%.
In summary, the Nigerian bond market is witnessing a decrease in yields driven by strong demand in the secondary market, particularly among investors seeking short-to-mid tenor bonds. As inflation expectations are countered by a rising interest rate environment, analysts predict further declines in bond yields as market dynamics evolve.
Original Source: dmarketforces.com
