Nigerian Bond Yields Experience Decline Amid Increased Investor Activity

Nigerian bond yields have declined due to increased investor activity in the secondary market, particularly for short and medium tenors. This interest, driven by inflation adjustments, marks a shift in Nigeria’s bond landscape, reversing the negative yields experienced previously. Analysts predict ongoing reductions in yields as investors continue to capitalize on favorable market conditions.

The yield on Nigerian bonds has decreased due to increased purchasing activity in the secondary market, particularly among investors focusing on short-to-medium-term securities. Investors who missed out on bids during the primary market auction are now eager to enhance their portfolio by acquiring bonds in the secondary market, which is expected to lead to lower yields, according to market analysts.

Significant interest in local borrowing instruments has emerged, driven by inflation considerations regarding naira-denominated investments. The recent uptick in Nigeria’s benchmark interest rate, which has now exceeded inflation rates, has alleviated the negative investment yields that investors experienced over the previous four years.

According to Coronation Research, the Nigerian government’s Treasury bill and bond yield curve has shifted from an upward to a downward slope over the last four years. Rising market interest rates across all durations, including projections for 2024, have caused a decline in the mark-to-market prices of Federal Government of Nigeria (FGN) bonds, with the longest-dated bonds being the most affected.

Market dynamics on Wednesday showcased a robust interest in the short end of the yield curve, where aggressive bids led to decreases of 53 basis points. Noteworthy purchases were observed in bonds maturing in February 2028, April 2029, and May 2029, further driving down yields on significant bonds such as the April 2029s and February 2031s.

Notably, the 2031 bond experienced a drop of 10 basis points to conclude at 18.40%, indicative of persistent demand in the market. As a result of this rally, the average benchmark yield fell by 22 basis points to settle at 18.86%.

In summary, the decrease in Nigerian bond yields can be attributed to heightened investor demand in the secondary market for shorter-duration bonds. This shift, driven by inflation considerations and the recent increase in benchmark interest rates, reflects a significant evolution in the Nigerian bond market over the past four years. Analysts anticipate a continued downward trend in bond yields throughout 2025 as investors seek to secure profits.

Original Source: dmarketforces.com