Monthly Bond market review and outlook

At the primary bond market, the August-2020 domestic bond auction received huge interest as safe investment vehicles remain limited in the country.

Notably, the auction was oversubscribed by 1.6x as bids worth N242.2billion turned up compared to N150billion on offer. Despite the huge interest, the DMO allotted only N116.7billion while allotting another N9.5billion via non-competitive bids (Total allotment – N126.2billion).

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Specifically, the DMO sold N23.8billion less than the N150billion offered, while overselling by 34percent on the longest-dated maturity to maintain their strategy of borrowing longterm for cheaper. In all, stop rates on the 2026s inched up 70bps to 6.70percent while the 2035s, 45s and 50s dropped marginally – closing at 9.35percent, 9.75percent and 9.90percent respectively.

At the secondary market, sentiments were bearish as profit-taking was the order of the month. Accordingly, average bond yield rose by 100bps month-on-month (m/m) to 7.9percent in August-2020. This month, we expect some of the sizable OMO maturity of N1.2trillion expected to hit the system to find their way to the primary as well as the secondary bond market as investors continue their search for high-yielding naira assets.