Nigeria’s Debt Management Office (DMO) sold double the N100 billion offered on its nine-year bond (longest) as investors locked in on 21.98 percent yield during the Monday auction.
“Market is trying to look for higher yield,” Olaolu Boboye, lead economist at CardinalStone Securities Limited, said.
Preference was given to the longer-dated tenor (new nine-year bond) selling N200.65 billion, 100 percent higher than offered with an oversubscription of N241.65 billion.
A total of N225.72 billion FGN bonds were sold at the auction on Monday. The amount sold was less than the auctioned N300 billion FGN bonds across three tranches. It included a reopened nine-year bond, five and seven tenure at N100 billion each.
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Yield on the longer-dated instrument increased to 21.98 percent at today’s sales from 21.50 percent in the previous auction.
The stop rates of the five and seven-year bonds also grew to 19.89 and 21.00 percent from 19.64 and 20.19 percent reported at the last auction respectively. This is marginally less than the stop rate on the one year treasury bill considered less risky than longer-dated bonds.
CardinalStone in its midyear outlook reported that fixed income yields are currently high and probably unsustainable and advised investors to invest in long dated instruments.
“A combination of these factors clearly favors a longer duration fixed income strategy and a careful watch on re-investment risks linked with currently attractive short-dated fixed income instruments, ” the report said.
Similarly, analysts at Meristem in their recent report said that yields on fixed income will hover around current levels and recommend that investors adopt a long-duration strategy in 2024 to capitalise on the current high yields in longer-dated government instruments such as bonds.
“By taking a long position in these instruments, investors can avoid the reinvestment risk associated with short dated instruments, especially when yields start to trend downwards. Our forecast suggests that yields will gradually decrease in 2025, making it essential to lock in high-yielding
investments before the decline,” it said.
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July FGN bond sales fell short of the N297 billion sold from the N450 billion offered at the previous auction.
Sales have steadily declined since April’s N626.6 billion, which itself was higher than March’s N475.7 billion. February saw a record-breaking auction of N2.5 trillion, with N1.5 trillion sold. January sales also reached N523 billion.
At Monday’s auction, it sold N18.89 billion and N6.18 billion barely 10 percent of the initial offer on the 5-year and 7-year as subscriptions were also low at N21.49 billion and N16.53 billion respectively.
The stop rate on the bonds is also well below July inflation rate of 34.19 percent as Price pressures remained prevalent in Nigeria.
The current benchmark interest rate stands at 26.25 percent, a 750 basis point increase from 18.75 at the beginning of the year.
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