Rise in bonds prices to persist as N413bn inflow boosts inter-bank

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Prices of FGN Bonds in the secondary market are expected to continued their upward trend this week, amidst inflow of N413 billion into the interbank money market, even as directive of the Central Bank of Nigeria (CBN) excluding local investors from participating in secondary market treasury bills auctions, alters direction of investments in the fixed income market in favour of FGN bonds.

Last week, prices of FGN Bonds in the secondary market (Over the Counter, OTC) rose following increased demand driven by four factors.

The factors are: Inflow of N142.8 billion from payment of matured bonds; inflow of N41 billion coupon payment; unsuccessful bids worth N113.18 billion from the FGN bond auction conducted by the Debt Management Office (DMO); as well as the directive of the CBN excluding local investors from participating in secondary market (Open Market Operation, OMO) treasury bills (TBs).

Leading the price gains induced by the increased demand occasioned by the above factors in the OTC segment of the bond market, were the 5-year, 14.50% FGN JUL 2021 bond, the 7-year, 13.53% FGN MAR 2025 bond and the 20-year, 16.25% FGN APR 2037 bond.

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Data from DMDQ showed that the 5-year, 14.50% FGN JUL 2021 bond gained 80 kobo while the yield fell to 13.92 percent last week from 14.46 percent the previous week.

The 7-year, 13.53% FGN MAR 2025 gained 8 kobo while the yield fell to 14.11 percent last week from 14.13 percent the previous week. Similarly, the 20-year, 16.25% FGN APR 2037 bond gained 78 kobo while the yield fell to 14.29 percent last week from 14.40 percent the previous week.

However, the 10-year, 16.29% FGN MAR 2027 debt lost 55 kobo and its corresponding yield rose to 14.20 percent last week from 14.09 percent the previous week.

Analysts projected that this trend will persist this week, citing the continued impact of the CBN directive, especially the resulting liquidity build up in the interbank money market, which would be aggravated with inflow of N413.19 billion from maturing TBs.

“We expect the bond market to trade more positively, as current CBN policy direction could drive increased participation in the bond market”, said analysts at Lagos based Vetiva Capital Management Limited.

Making a similar projection, analysts at Lagos based Zedcrest Securities Limited, said: “We maintain a bullish outlook for bonds in the interim, as local investors look to bonds as alternative assets in light of restrictions on OMO securities by the CBN.”

In the same vein, analysts at Lagos based Cowry Assets Management Limited said: “In the new week, against the backdrop of boost in financial system liquidity, we expect FGN bond prices to rally, with corresponding decline in yields, amidst expected buy pressure at the OTC market.”

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