Bullish sentiment in bond market as OMO instrument scarcity intensifies

TRADING IN THE TREASURY bonds secondary market was bullish, as the average yield across instruments contracted by 56bps to 8.8 percent. More investors participated in the market as a result following the anticipated scarcity of instruments, as the DMO confirmed it is close to fulfilling its borrowing plans for the year.

Across the curve, yields contracted at the short (-83bps), mid (-41bps) and long (-63bps) segments due to demand for the MAR-2024 (-151bps), MAR-2027 (-119bps) and MAR-2050 (-72bps) bonds, respectively.

Two weeks ago, the urge by investors for higher rate of return drove them to massively subscribe to the federal government’s sovereign Sukuk bond which was over subscribed by N519.12 billion. N150 billion worth of bonds was offered for sale.

The Debt Management Office had then said the offer attracted a total subscription of N669.12bn, representing a subscription level of 446 per cent. It said it allotted N162.557bn to investors in the third Sovereign Sukuk.

The debt office said the high demand for the bond came from a wide range of investors, including ethical funds, insurance companies, fund managers and retail investors.

The statement said the participation by a wide range of investors was in line with the DMO’s objectives of diversifying the investor base for government securities and promoting financial inclusion.

The DMO said, “The issuance of the third Sovereign Sukuk, which followed the debut issuance of N100bn in September 2017 and a second issuance of another N100bn in December 2018, is based on the DMO’s commitment to using borrowed funds to finance infrastructure.

“The Sukuk issuances are project-tied and are used to finance specific projects, which are disclosed to investors.”

It said the proceeds of the issuance would be used to finance 44 critical road projects across the six geopolitical zones of the country.