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Saturday, April 1, 2023

Nigeria Government Bond Yields Hit Double-Digits at Primary Auction

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Yields on benchmark Federal Government of Nigeria (FGN) bonds rose to the highest levels in eight months at a primary auction this week (Wednesday) as investors sought higher rates amid growing inflation expectations.

The debt management office (DMO) offered N150 billion in 10-Year, 15-Year and 25-Year Bonds, which were allotted at marginal rates of 10.25 percent, 11.25 percent and 11.80 percent, respectively.

That compares to similar tenor bonds sold a month ago (in January) allotted at the Marginal Rates of 7.98 percent, 8.74 percent and 8.95 percent, respectively, according to data compiled by MoneyCentral.

FGN Bonds

Yields on the FGN bonds have hit double digits for the first time in 8 months or since June 2020, as the government continues to issue bonds to fund its growing fiscal deficit.

The yield on Nigeria’s 10-year note which climbed 227 basis points since the last auction in January, were some 225 basis points higher compared to the same levels in June, 2020.

Overall Nigeria’s 2021 budget deficit is equivalent to N5.60 trillion representing 3.93 percent of GDP. The budget deficit is to be financed mainly by borrowings from domestic sources of N2.34 trillion and foreign sources of N2.34 trillion.

Investors demanded more for the 10-Year and 15-Year paper as bids outstripped the amount on offer with a bid-cover-ratio of 1.83 for the 10-Year and 2.1, for the 15-Year.

Real yields are however still firmly anchored in negative territory after January inflation printed at 16.47 percent, the highest level since 2017.

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