…as DMO sells N910.39bn
From the highest on record, FGN bond yields hit their lowest since their issuance at the auction on Monday as the Debt Management Office (DMO) manages its debt obligation using shorter instruments.
The yield on the February 2031 dropped to 19.33 percent from its record high of 22.50 percent last month and that of April 2031 dropped to 19.20 percent from 21.79 percent, also a record high on this bond.
Unprecedented market moves…
Ahead of the February FGN bond auction, investors had anticipated locking in on very high yields of the January 2035 bonds which was newly issued last month at a yield of 22.6 percent.
However, things took a different turn when the DMO took the January 2035 bond out of the February reopening on Friday, only a business day away from the auction, impacting liquidity and market-making capabilities, and creating significant disruption.
Matilda Adefalujo, a fixed-income analyst at Meristem described the move to remove the January 2035 (a ten-year bond) by the DMO as a borrowing cost management.
Read also: FGN Bonds rally as yield on new 10-yr bond hits record 22.6%
“The longer the maturity, the higher the yields. DMO is managing debt obligations seems they would rather raise capital on shorter tenors to help with debt obligation,” Adefalujo said.
This led to a surge in participation during the February auction, hence a decline in the yields on the two instruments issued.
The DMO which had offered had offered only N200 billion for its April 2029 bond saw a demand of N465 billion, and sold N305 billion at 19.20 percent.
Same for February 2031, it saw a demand of N1.116 trillion, eight times the volume offered, and N605billion of it was sold.
In total, the DMO raised a total of N910.39 billion at this auction, 50 percent higher than the demand of last month’s N606.50 billion.
Shifting power dynamics…
According to analysts, this has led to a shift in dynamics in the participation of the primary and secondary markets, as many who had stalled in buying in the secondary market, despite attractive yields on January 2035, opted to wait for the primary auction had been disappointed.
“The era of sitting on your hands month after month to only participate at the auctions is over – the markets have changed,” Kehinde Awonusi, fixed-income trader and Executive Director of Vega Securities said in a post on LinkedIn.
He emphasised the need for active participation in both primary and secondary markets.
Going forward analyst encourages investors to buy and add bonds to their portfolios as it might take a while before rates are at current levels again.
“Buy bonds to your portfolio, it will be hard getting rates at this level again. They hold their values till maturity and pay coupons every six months,” Balogun Efe, founder of Ayoolainvestng, a wealth management firm said.
English (US) ·