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The average yield on Nigerian Government bonds has seen a slight decline to 19.3% in the secondary market, driven by a surge in demand from local investors. This increased interest in naira-denominated assets occurs despite expectations of a continued rise in inflation.

Inflation, which was recorded at 31.70% in February 2024, is anticipated to climb even higher in March. Despite the central bank’s ongoing efforts to curb inflation through higher benchmark interest rates, these measures have yet to slow down the immediate escalation of inflation rates effectively.

The Debt Management Office (DMO) of Nigeria is set to host a primary market auction on Monday, where it plans to offer securities totaling over N450.00 billion. This will include a new issuance of the FGN APR 2029 bond, along with re-openings of the 18.50% FGN FEB 2031 and 19.00% FGN FEB 2034 bonds.

Analysts expect robust demand at the auction, supported by ample liquidity within the financial system and the growing appetite for government securities. This sentiment was reflected in last week’s secondary market activities, where bullish trends pushed the average bond yield down by 4 basis points to 19.3%. However, yields at the short end of the spectrum slightly increased by 2 basis points due to selling pressure, particularly on the APR-2029 bond which saw a 36 basis point rise.

In contrast, yields on the long and middle segments of the curve experienced declines, with long-term bonds like the FEB-2031 and JUN-2053 bonds dropping by 17 and 25 basis points, respectively. This movement highlights investor preference for longer-term maturities.

Cordros Capital Limited has projected that the outcome of Monday’s auction will likely influence secondary market trends. Fixed income traders remain cautious, suggesting that yields on FGN bonds are expected to stay high in the short term, influenced by both global and domestic monetary policy shifts and ongoing imbalances between demand and supply in the bond market.