Inflation: Bond Yields Rise As Investors Interest Decline

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With inflation now at 12.8 per cent, bonds investors have slowed down their investments as the bonds auction held by the Debt Management Office on Wednesday saw lower subscriptions despite higher returns.

The debt office said it raised N170.18 billion in bonds maturing in 2036, 2026 and 2020 at Wednesday’s auction, paying higher returns than at the previous auction on March 16, 2016.

According to auction results published yesterday, the DMO said it sold N40 billion of 2036 paper at 13.08 percent at Wednesday’s auction, compared with 12.40 percent at the previous auction.

It also sold N40 billion of 2026 debt at 12.60 percent, against 12.09 percent, and N20 billion of the 2020 debt at 12 percent against 11.33 percent. The debt office said it allocated an additional N70 billion  of the 2026 maturing debt to investors in a non-competitive tender.

Subscriptions from investors stood at N206.72 billion compared with N262.42 billion at the last auction. Although interbank rates had not immediately reacted to the higher inflation rate, traders said there would be lesser interest in bonds.

Olakunle Ezun of Ecobank noted that a 12.8 per cent inflation rate that has a higher tendency to continue to rise means that investments will generate negative returns adding that bond yields will have to rise to compensate for rising inflation.

The federal government has said it plans to raise about N900 billion locally to finance part of the N2.2 trillion budget deficit.

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