THE average yield on the Federal Government of Nigeria (FGN) bonds instruments jumped moderately to 14.5% as a result of investors’ portfolio reshuffle that greeted the apex bank’s decision to postpone the monetary policy meeting indefinitely.
Central Bank of Nigeria announced that it has postponed the monetary policy committee meeting indefinitely amidst growing uncertainties in macroeconomic performance. The CBN has lost touch with key growth indicators while naira has lost its allure due to exchange rate pressures.
A sustained surge in Nigeria’s headline inflation rate has clouded real return on naira asset investment as investors continue to earn inflation-exposed returns in the fixed income market.
This is coming despite the fact that Nigeria is currently operating in a high interest rate environment following a switch to a hawkish pose in the second quarter of 2022.
Despite the monetary policy tightening, the consumer price index has continued to worsen, reducing the purchasing power of the naira.
In the secondary market, trading activities ended on a bearish note last week, driven by tepid demand as investors adopted a wait-and-see approach to the direction of the benchmark interest rate.
The trend was attributed to profit-taking activities on the MAR-2024 (+155bps) and APR-2032 (+12bps) bonds, respectively. Conversely, the average yield contracted at the long (-1bp) end following demand for the JUN-2053 (-15bps) bond.
“Over the medium term, we expect yields in the FGN bond secondary market to remain elevated, driven by the sustained imbalance in the demand and supply dynamics”, analysts said. The investment firm highlighted the deliberate actions by the DMO to keep borrowing costs moderate and remain a downside factor.
