Bond Investors Sell Naira Assets Over  Inflation Data

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Local FGN bonds market ended on a bearish note in the secondary market after unimpressive primary market auction ahead of inflation data. Bond investors reduced their interest in naira assets amidst economic and market uncertainties.

In the secondary market, fixed income traders said there was selling interest in selected papers like the May 2033 FGN Bonds, 2038 borrowing notes, and 2053 papers.

Traders also reported that trading activities were seen particularly in the Mar 25 (+8bps), Jan 26 (+3bps), and May 33 (+11bps) instruments. As a result, the average mid-yield increased by marginally to 18.78%.

The local FBN bonds market was saturated with mixed interest before the bond auction was rescheduled to the last week of the month.

The FGN bond auction results surprised the market with a significant increase in stop rates. The 2029, 2031, and 2033 maturities were issued at 19.64% (up from 19.29%), 20.19% (up from 19.74%), and 19.89% (up from 16.10%).

Overall, the market settled bearish, and the average mid-yield increased by 198bps m/m to close the month at 20.47%.  According investment report by AIICO Capital Limited, FGN bonds market closed bullish in Q2-2024, falling by 10bps quarter on quarter to 18.94% at the end of Q1’24 and 18.84% at the end of Q2’24.

Analysts alluded the slight bullish close for Q2 to the downtrend in stop rates at the auction, particularly the first two auctions in Q2-2024. Despite the recent uptick at the last auction for the quarter, the market settled bullish.

The July auction makes predictions challenging to decipher, said AIICO Capital Limited. However, analysts said they know that the DMO has raised a significant amount from the bond auction in H1 24, worth about ₦4.13 trillion and at a very high cost.

“Even though the DMO keeps pace with the uptrend in rates, we expect the allotted size to reduce gradually”, the report stated.

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