Key Points

• Nigerian bonds yield falls to 15.46 percent.

• Investors respond to disinflation with stronger demand.

• Real interest rates rise amid declining inflation.

On Monday, the benchmark yield on Nigerian bonds dropped to 15.46 percent, which was lower than the headline inflation rate. Investors were still very interested in domestic sovereign debt. Analysts said that the drop is due to less pressure on prices and a positive outlook for Nigeria’s economy as a whole. Investors are still looking for stable returns in the fixed-income market.

The National Bureau of Statistics said that headline inflation fell from 18.02 percent in September to 16.05 percent in October. The current disinflation has caused a rush of bargain hunters, as investors quickly lock in yields before the Central Bank of Nigeria is expected to make policy changes.

The yield on Nigerian bonds goes down as inflation eases

The drop in yields happened at the same time as more activity in the fixed-income market. Market watchers said that investors are expecting lower spot rates before the Debt Management Office’s November auction, where the government plans to borrow more money from local sources.

The real interest rate is now about 11 percent, which is very attractive to both domestic and foreign investors. This is because the policy rate is 27 percent and the headline inflation rate is 16.05 percent. Analysts said that this situation has led to strong demand for all maturities, but especially for long-term instruments.

As Nigerian bonds’ yields fall, investors change their positions

On Monday, yields across the curve fell by about 11 basis points, with the biggest drops happening at the long end. Short- and mid-term maturities also went down a little bit, which shows that there is a lot of interest in Nigerian sovereign instruments. Investors are keeping a close eye on the market for more signs, since sustained disinflation is likely to keep yields low in the short term.

The trend shows that more people are moving towards safer fixed-income assets because of uncertainty around the world. Portfolio managers are trying to protect themselves from volatility while taking advantage of real yield opportunities in the local market.

Macro indicators affect the demand for fixed income

Most people think that the Monetary Policy Committee will lower the benchmark rate by 50 to 100 basis points at its next meeting. Analysts said that lower rates, along with continued disinflation, could help bond prices even more and get more people to bid in upcoming auctions.

The local fixed-income market continues to draw interest from both domestic and foreign investors because of its attractive real yields and the possibility of more monetary easing. People in the market say that the environment shows strong confidence in Nigeria’s sovereign debt instruments. At the same time, macroeconomic indicators are still guiding expectations for future monetary policy.