Nigerian Bond Yields Jump 26 Basis Points Ahead of ₦1.75 Trillion Auction

Nigeria's government bond yields jumped last week as investors repriced the sovereign curve for heavy fourth-quarter borrowing, with the average FGN bond yield widening 26 basis points to 16.4% despite abundant banking-system liquidity.

The sell-off, reported by the Government and Business Journal, sets up a direct test of appetite at the Debt Management Office's bond auction on Monday, 19 October, where ₦1.75 trillion will be offered across three maturities.

Where the selling concentrated

Yields expanded across the benchmark curve: 16 basis points at the short end, 32 basis points in the mid-section and 19 basis points at the long end. The mid-curve bore the heaviest pressure. The March 2027 bond yield surged 103 basis points, while the May 2033 and September 2036 issues recorded increases of 68 and 56 basis points respectively.

The repricing follows the Central Bank of Nigeria's September cut of the monetary policy rate to 23% and expectations of large issuance volumes through the rest of the year. Investors are demanding higher entry yields before committing to new paper, even as short-term rates ease.

Liquidity eased, but did not rescue bonds

The overnight rate contracted 47 basis points week-on-week to 20.4%, supported by ₦2.41 trillion in Open Market Operations maturities that outweighed a ₦188.22 billion net debit from the Treasury bills primary market auction. Average banking-system liquidity rose to a net long position of ₦5.83 trillion from ₦4.02 trillion, with no corresponding mop-up operation by the CBN.

That divergence is the week's central signal. Surplus cash can lower overnight funding costs, but it does not translate automatically into demand for duration when the government is about to supply ₦1.75 trillion of new bonds. Cash availability and risk appetite are separate questions.

The Treasury bill cross-current

Bills traded with mixed signals. Average secondary yields edged up one basis point to 18.2%. Within that, NTB yields slipped one basis point to 17.9% as unmet demand from the 14 October auction spilled into the secondary market, while OMO yields rose eight basis points to 18.7%.

At the primary auction, the DMO offered ₦450 billion and received subscriptions of ₦1.03 trillion, yet allotted only ₦269.06 billion. The 364-day stop rate rose five basis points to 15.90%, while the 91-day and 182-day rates held at 15.50% and 15.80%.

Monday's ₦1.75 trillion test

The auction splits into ₦500 billion of 2034 bonds, ₦800 billion of 2036 bonds and ₦450 billion of 2038 bonds. With secondary yields already adjusted higher, marginal rates will signal whether investors require further compensation for supply risk or whether the pre-auction selling has gone far enough.

A clearing level above recent secondary marks would likely extend the bearish run as portfolios align to new benchmarks. A stable outcome, by contrast, could arrest the slide and provide a reference point for the rest of the quarter's issuance calendar.