Nigerian govt’s 5-year bond yield falls by 2% after CBN’s lending rate cut

Yield on Nigerian government’s five-year bond shrank by 200 basis points or 2% on Friday with returns falling across maturities after the Central Bank of Nigeria made a surprise announcement Thursday, bringing down benchmark lending rate to ramp up economic growth, traders told Reuters.

Rising from the 273rd session of its Monetary Policy Committee two days back, the apex bank reduced the interest rate from 13.5% to 12.5%, causing bond yields to drop.

The most liquid 5-year paper crashed by 201 basis points to 6.5% just as the seven-year bond falling due in 2026 shed 120 basis points to 8.8%.

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Demand from investors wanting to reallocate funds from the money market, where excess liquidity had crippled yields following foreign investors exit from local treasuries due to oil price slump and the coronavirus crisis, increased as a result of the cut in interest rate.

Gowdin Emefiele, the apex bank chief, said in Abuja on Thursday Nigeria’s Gross Domestic Product might shrink in the second and third quarters of this year compared to the 1.87% expansion posted January through March.

But he is optimistic of a rebound in the fourth quarter in view of the reforms deployed by monetary and fiscal authorities.

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