Nigeria’s fixed income market is currently one of the best performing among peers, providing investors with the perfect opportunity to take advantage of double digit returns.
Since the start of the year, inflow witnessed in the Nigeria fixed income market space has soared as investors take advantage of the Central Bank of Nigeria’s aggressive policy stance on mopping excess liquidity in the system.
Returns on Nigeria yield stands at 14.25 percent as at Friday, while the likes of Kenya and Ecuador join in the bond rally as more dovish Federal Reserve triggered a global risk-on environment and a hunt for yield.
Frontier nations have all posted returns above 13.5 percent, far above the global sovereign average of 2.4 percent, Bloomberg data shows.
Meanwhile optimism that crude oil, which has exceeded the 2019 budget benchmark, will reach $70 per barrel on OPEC cut and US sanctions on Venezuela and Iran has further strengthened positive sentiment of investors towards the markets.
In addition, fears of a slowing global economy which has seen the growth projection for many developed countries including the United States which may possibly cut rates in 2019, is a factor analysts have bet to favour emerging markets as many central banks have taken a dovish stance on policy rates.
Nathalie Marshik, money manager and analyst says that in a low growth environment, investors should look to developing countries with the strongest balance sheets and external positions, recommending the local-currency bonds of emerging markets including Egypt, and frontiers such as Nigeria and the Dominican Republic.
However, some analysts say there is likelihood of that economic slowdown in the developed nations might have a contagion effect on emerging economies including Nigeria.
Although not a strong possibility at the present moment, a bite on spending power of first world countries would affect commodity prices and nations that largely dependent on proceeds from sales of primary commodities, for instance, crude oil.
If emerging markets get caught up in the haze, a likely outcome might be a divergence of monetary policy across the front as the likes of Brazil and China with better buffers might consider a pro-growth expansionary policy while Nigeria and other markets with structural issues hike rate to remain attractive.
In any case, it is more likely that Nigeria’s bond market would remain favourable for investors at least in the near term especially as government borrowing is expected to increase once the 2019 budget is passed.