Bond Yields Seen Rising Later in the Year Amid FX Pressures

By Chuks Emele

Nigerian bond yields are expected to edge up in the second half of the year as foreign-exchange pressures force the monetary authorities to woo foreign portfolio investors, according to traders and market analysts. 

Yields have languished at their lowest in a decade in the past year, with the market flush with funds after the Central Bank of Nigeria stopped non-bank institutions, including pension funds, from investing in its lucrative Open Market Operations (OMO) bills late in 2019.

“Our expectation in the first half is that we would see yields track downwards after which we would then see some uptick in yields in the second half driven by the demand and supply expectation,” Robert Omotunde, chief investment officer of Afrinvest Asset Management, said on Tuesday on a webinar. “The Nigerian domestic bond market is a fantastic opportunity to plug into.”

Many traders have cut their OMO bills holdings since the Central Bank of Nigeria increased returns twofold at an auction last week, raising expectations that income on sovereign bonds and treasury bills will follow suit.

With the prevailing low yields, foreign portfolio investment in Nigeria has sharply declined, further adding to the foreign exchange shortages that has weighed down the value of the naira, which fell below 400 naira per dollar on Tuesday in interbank trading. It is expected that CBN will offer higher yields to try too lure back foreign investors.