Bond Market: Safety In A Season Of Uncertainty

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Saturday, January 26, 2019 6:30AM /Proshare Research

 

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Nigeria’s bond market was upbeat in 2018. The increase in recurrent fiscal and capital expenditure resulted in the federal government borrowing more money from both the local and foreign capital markets, leading it to issue fresh bonds and bills. Nigeria’s total debt stock in the year stood at $73,213bln or N22.429trn which included both Federal and State government liabilities. 

External debt fell by 2.02% or $21.592bln largely due to the redemption of a $500mln Eurobond which matured in July, 2018. It is expected that with oil prices hovering between $55 and $60 per barrel for most of 2019, the local Treasury bill market will be very active with yields staying between 15% and 17% similar to 2018.

 

The key features of the bonds and general fixed income securities market in 2018 were:

  • A shift from domestic to foreign debt as the FGN tried to reduce debt service cost.
  • More Eurobond issues with stretched maturity dates; yields ranged from 6.75% on 2021 bonds to 7.143% on 2030 bonds and 9.248% on 2049 bonds
  • Issuance of Sukuk Bonds to finance road construction
  • Issuance of Green Bonds to finance activities that clean up the environment and reduce toxic emissions

 

Table: Nigeria’s Debt Stock as at September 30, 2018 (in mln)


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Source: Nigeria’s Debt Management Office (DMO)

 

The bond market in 2018 was very active as institutional investors took flights to safety by selling off equities to invest in bonds. Bond yields at between +15 and +17% in an inflationary environment of 11.28% looked (and still look) attractive at a time the stock market fell below a negative yield of -18%.

 

Do feel free to share your opinions/observations and feedback with us vide content@proshareng.com and/or research@proshareng.com

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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.



 

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