BusinessBond Market May Witness Sell-Off Ahead Of Elections

Bond Market May Witness Sell-Off Ahead Of Elections

aiteo

Domestic and offshore investors in Nigeria’s bond market may choose to hold on to cash rather than invest in bonds, as a result of apprehentions about the political environment in election year 2015, analysts say.

Recently, Standard and Poor’s (S&P) revised its outlook on Nigeria’s sovereign credit to ‘negative’ from ‘credit watch negative’ on the back of heightening political and institutional risks, which analysts say sounds a note of caution to the nation’s economic managers.

Considering these factors, investors, particularly foreigners, who are major buyers of Nigerian securities, have continued to express significant concerns as the economy is further exposed to vulnerabilities, signposting significant downside risk to market outlook.

Glo

“We expect some kind of sell-off from both domestic and offshore investors to hold cash as a result of the fear of uncertainties due to the 2015 general elections. The impact of the new CBN leadership could affect the market, as the operators will be skeptical in their dealings,” said Jide Nwaogwugwu, bond market analyst at Dunn Loren Merrifield.

Though Nwaogwugwu noted that the bond market would still remain stable throughout the year, he added that “We foresee issuance of more non sovereign bonds in the months ahead.”

In the first-quarter (Q1) of 2014, a total of N265billion worth of FGN bonds was issued across various benchmarks –3year, 10year and 20 year. The market also witnessed maturity of about N355billion worth of FGN bonds.

An indication of the Federal Government’s resolve to reduce their debt levels in the years ahead played up in the amount issued in the Q1’2014 (N265billion) which is less than N380.50billion issued in Q1’2013.

This outlook comes a few days after the Debt Management Office (DMO) auctioned N25billion in 13.05% FGN August 2016 (3-year re-opening); and N25billion in FGN March 2024 (new issue 10-year bond). FGN Bonds are backed by the full faith and credit of the Federal Government, and are charged upon the general assets of Nigeria.

The analysts noted that the decision of the US Federal Open Market Committee (FOMC) in the first-quarter (Q1) to continue with tapering, affected foreign inflows into the Nigerian bond market, a situation that affected the yield levels.

FGN bonds yields were doing 11%-12% but as a result of the tapering decision, yields were between upper 13% and lower 14% levels during the quarter.

BUSINESSDAY

About the Author

Homepage | Recent Posts

More like this
Related

Tinubu Appoints Abdullahi Bello New Chairman Of Code Of Conduct Bureau

March 28, (THEWILL)- President Bola Tinubu has approved the...

First Lady Remi Tinubu Pledges N1bn To Fight Tuberculosis In Nigeria

March 28, (THEWILL)- Nigeria's First Lady, Senator Oluremi Tinubu,...