SAT MAY 18 2024-theGBJournal|FGN bonds secondary market closed bearish this week, as investors reacted to the release of the April 2024 CPI data (headline inflation: +49bps to 33.69% y/y) by the NBS.
Consequently, the average yield advanced by 7bps to 18.7%. Across the benchmark curve, the average yield expanded at the short (+4bps), mid (+10bps) and long (+1bp) segments due to sell offs of the MAR-2025 (+11bps), APR-2032 (+37bps) and APR-2049 (+16bps) bonds, respectively.
At this month’s bond PMA, the DMO offered instruments worth N450.00 billion to investors through re-openings of the 19.30% FGN APR 2029 (Bid-to-offer: 0.7x; Stop rate: 19.29%) and 18.50% FGN FEB 2031 (Bid-to-offer: 0.5x; Stop rate: 19.74%) bonds, and issuance of the new FGN MAY 2033 (Bid-to-offer: 2.5x; Stop rate: 19.89%) bond.
The auction was oversubscribed as the total subscription level settled at N551.32 billion (bid-to-offer: 1.2x), with the DMO allotting bonds worth N682.07 billion (non-competitive allotments: N301.30 billion) across the three instruments, resulting in a bid-to-cover ratio of 0.8x.
We note the wane in demand in the FGN bonds secondary market triggered by the accelerating inflation print is expected to remain in the short term, more so, as the CBN governor hinted at the likelihood of a further rate hike at the next monetary policy meeting.
Thus, we think participants in the space will continue to reprice yields higher amid the tight control of the MPC on money supply into the economy.
Over the medium term, we expect yields to remain elevated, driven by the anticipated monetary policy administration globally and domestically and sustained imbalance in the demand and supply dynamics.
Meanwhile, the FGN Eurobonds opened in a bullish mode following the US CPI data which dipped by 0.20% to 3.40% compared to the previous print of 3.60%.
Despite this result, the FGN Eurobond market closed on a bearish mode as average benchmark yield increased by 2 bps week over week, settling at 9.53% as three FED speakers opted for higher-for-longer rates in their speech.
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