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FSDH Expects The Corporate Bond Market to Rebound

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Monday, November 06, 2017  02.42PM / fsdh Research 


Please find below the highlights of the report: 
The economic and financial market developments in the last few months in Nigeria point to a possible rebound of activities in the Corporate Bond Market (CBM). The recent drop in the yields on the Federal Government of Nigeria (FGN) securities, particularly the Nigerian Treasury Bills (NTB), creates an opportunity for the growth of activities in the CBM. 

There was a lull in activities in the CBM as companies could not compete with the high yields on the 364-day NTB. The average yield on the 364-day NTB between January 2017 and November 2017 stood at 22.16% with the highest yield of 23.41% recorded in 19 April 2017. 

The high yields crowded out the corporate borrowers from the debt market. 

The latest Purchasing Managers’ Index report for the month of October 2017 shows that economic activities in the manufacturing and non-manufacturing sectors expanded further. The increase in the PMI is also an indication of expected business expansion in the short-to-medium term which will require more financing. 

The consensus forecasts for the Nigerian economy is that the Gross Domestic Product (GDP) will continue to grow. Although the GDP growth rates of the International Monetary Fund (IMF) for Nigeria from 2017 to 2020 are conservative, they are in the positive region. 

Both FSDH Research and the Budget Office of the Federation believe the growth rates in the economy between 2017 and 2020 will remain strong, ranging from 2% to 7%. This means that more business investments will be undertaken. 

FSDH Research believes that the capital requirement for these investments will exceed what companies can generate from internal cash flow. These companies will need external funding and with the expected drop in yields, corporate bond will be an attractive source of raising non-permanent long-term capital to meet the investment needs of firms. 

Please click here to download the full report. 

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