FGN Bonds rally as yield on new 10-yr bond hits record 22.6%

…DMO sees oversubscription on 7-year, 10-year bonds

The Debt Management Office (DMO) opened a new 10-year tenured bond at a yield of 22.60 percent, the highest yield and coupon rate on record for FGN bonds.

The 10-year bond also referred to as the (Jan-2035) is a new FGN bond that was first auctioned on Monday January 27 at a coupon rate of 22.60 percent, also the highest coupon rate on record.

The high coupon on the bond attracted investors which led to an oversubscription of N368.1 billion as opposed to the N200 billion put up by the DMO.

Atiko Audu, chief investment officer at ARM Pension Managers advised that investors take advantage of the yield pick up of 200 basis points between the March-2035 and Jan-2035 FGN bonds.

“Sell your holdings on March-2035s at 20.5 percent and buy new holdings of Jan 2035s at 22.6 percent, the latter is a shorter tenor with much higher yield,” Audu said.

At the primary market auction yesterday, the DMO re-opened the 5-year (APR-2029) , seven-year (FEB-2031) instruments, along with the issuance of the new JAN-2035 bond.

“What most investors are trying to do is lock in a long term instrument because there’s expectation of different macroeconomic changes such as inflation and MPR. The new 10-year bond will also attract lots of attention because of this,” Matilda Adefalujo, fixed-income analyst at Meristem Securities said.

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The Feb-2031 was not left out of the rally as it made history as the first Nigerian bond to cross over the N2 trillion in issuance.

Audu said that this fit now paves the way for more bonds to cross this rubicon.

As of Wednesday the DMO has issued N2.1 trillion worth of Feb-2031.

This win was supported by the growing yield on the instrument; it reached a record high yield of 22.50 percent from 18.50 percent when it was first issued.

The DMO sold N9 billion more than the N150 billion it set to auction.

Although April-2029, the shortest tenor bond offered wasn’t oversubscribed as investors locked in longer tenors for higher yields, yields on it increased to 21.79 percent (a record high).

Overall the DMO sold a total of N606.46 billion at the auction as against N450 billion it put up.

The outcome of the first FGN bond auction this year aligns with projections from analysts at CardinalStone advising investors to lock in on longer term instruments.

“Overall, we expect yields to be mostly stable in H1 ’25 before moderating in H2’25 and therefore favour stronger allocations to long duration, giving its edge from price appreciation and greater protection against re-investment risks” it mentioned in its 2025 outlook.

The Federal Government of Nigeria is planning to raise not more than N1.8 trillion from the bond market in the first quarter of 2025, according to the Debt Management Office (DMO).