FGN bonds attract investors as PFAs investment hits N9trn

By Motolani Oseni

Federal Government of Nigeria (FGN) bonds continued to attract investors, as the debt capital market was swayed by buying interests on mid-to-long-term instruments which offset selloffs at the front of the curve.

This is even as the Pension Fund Administrators (PFAs) investment has spiked to about N9 trillion in October 2022, while the bulls in the market have started gaining strength to consolidate on the November playbook.

For instance, investors picked more debt capital market, while trading activities on the last trading day for last week, closed with the average yield declining by 10 basis points to 14.3 per cent. A similar scenario, played out last month amidst another 100 basis points interest rate hike.

The domestic bonds market was mildly bullish in November with the average yield lower by a basis point to 14.3 per cent month on month, according to Afrinvest market note.

Accordingly, yields fell 27 basis points and one basis point each to average 14.4 per cent and 14.8 per cent on the medium and long-term papers in contrast to the 41bps rise to 12.9 per cent for short-dated instruments.

Specifically, the 10-year 16.29 per cent FGN MAR 2027 debt papers and the 20-year 16.25 per cent FGN APR 2037 bond gained N1.79 and N0.78 respectively, according to analysts’ notes. Consequently, the market corresponding yields fell to 14.03 per cent (from 14.58%) and 15.88% (from 16.02%) respectively on demand pressure.

Cowry Asset note shows that the 15-year, 12.50 per cent FGN MAR 2035 paper and the 30- year 12.98 per cent FGN MAR 2050 debt remained unchanged as their corresponding yields stayed flat at 14.75 per cent and 14.72 per cent respectively.

Across the benchmark curve, Cordros Capital told clients that the average yield contracted at the short (-30bps) and long (-3bps) ends following demand on the MAR-2027 (-55bps) and MAR-2036 (-26bps) bonds, respectively.

Conversely, the average yield expanded at the mid (+4bps) segment as investors sold off the APR-2032 (+8bps) bond, analysts stated. Elsewhere, the value of FGN Eurobonds traded in the international capital market appreciated for most maturities, Cowry Asset stated.

The 20-year, 7.69 per cent paper FEB 23, 2038; and the 30-year, 7.62 per cent NOV 28, 2047, gained USD 0.51, and USD 0.20, respectively, analysts wrote.

Although, the bullish momentum was supported by the activities of Pension Fund Administrators (PFAs), allied around FGN bonds with about N9 trillion at stake as of October 2022, as pension assets rose to about N14.60 trillion, according to the latest report from National Pension Commission (Pencom).

According to Pencom, the total Pension Industry assets under management increased by 8.72 per cent to N14.59 trillion in October 2022 from N14.42 trillion in the previous month.

Total pension assets have been estimated to reach N14.8 trillion in 2022. In 2021, Nigeria’s pension asset had settled at N13.42 trillion amidst improve compliance driven by increased retirement savings accounts.

The recent surge, according to analysts was driven by the opportunity avail to RSAs holders to use their holdings to support mortgage deals

“This tremendous growth can be attributed to the increase in the level of compliance by the public and private sector employers as a result of the various steps taken by the Commission to improve compliance and coverage as well as enhanced market penetration and strategies deployed by the PFAs”, Cowry Asset analysts said.

“Statistics show that the industry has grown by more than 600 per cent in terms of pension fund assets size, a clear indication of the industry’s growth and evolution as well as the continued acceptance of the scheme by workers in both the formal and informal sector”.

In 2022, the rise in total industry assets was principally driven by the continued rising exposure of fund managers to securities of the federal government in the face of interest rate hikes by the central bank plus the attractive money market instruments amid rising fixed-income yields, according to Cowry Asset Management.

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With a positive rise in the number of contributors to 9.85 million members at the end of October, the total number of contributions is expected to surpass the 10 million membership mark by the close of the year.

Analysts noted that the funds have continued to favour the Nigerian government’s debt securities as an asset class resulting from the scantiness of good quality investible securities available to them.