Nigeria’s bond market underperformed its African counterparts in July, recording a decline of 1.8 percent according to the AFMI Bloomberg African Bond Index.
“The outturn was because of the selloffs in the review period due to repricing, in reaction to the interest rate hike by the CBN,” Samuel Gbadebo, research analyst CardinalStone said.
Last month the Monetary Policy Committee raised the interest rate by 50 basis points to 26.75 percent from 26.25 percent.
“Bearish spree continued in the domestic bond market as sell pressure from the previous week lingered, as the primary bond auction took the centre stage. The low demand witnessed at the auction and 50bps uptick in Monetary Policy Rate (“MPR”) from 26.25 percent to 26.75 percent, weakened market sentiment and drove the average FGN Bond yield up by four basis points week-on-week to 19.45 percent from 19.41 percent that was recorded in the prior week,” Analyst at Afrinvest reported in weekly update on July 29.
This performance places Nigeria at the bottom of the regional bond index, trailing behind countries such as Ghana, South Africa, Namibia, Zambia, Egypt, Kenya, and Botswana.
The African local credit market maintained an upward trajectory in July 2024, as the AFMI Bloomberg African Bond Index (25.0% capped) gained 0.7 percent month-on-month.
July’s performance marked the index’s fourth consecutive positive return and reflected improved sentiments in select countries.
The index is calculated by Bloomberg Indices, the composite index comprises the South Africa, Egypt, Nigeria, Kenya, Botswana and Namibia local currency sovereign indices. In April 2017, Zambia and Ghana were added to the composite index.
It equips investors with a tool to measure and track the performance of Africa’s bond markets.
According to analysts at CardinalStone in its recent fixed income report said that the Ghanaian and Zambian local currency bonds performance in the review month was aided by improved aura around the debt reconstruction exercises in the countries.
South African bonds also gained 4.0 percent in the same period, on the back of buying care from non-resident investors, who purchased c.R19.5 billion ($1.1 billion).
The country’s sovereign instruments rode the tailwinds of positive general elections and gradual improvements on the fiscal front.
“ In the current month, the stars appear aligned for extended gains in the local African credit market, with spreads likely to narrow on favourable changes in major markets like South Africa and Nigeria,”
It said South Africa is currently experiencing improving power generation, foreign investors’ interest, and the benefits of using gold and foreign exchange reserves to cut the budget deficit.
While favourable changes for Nigeria from its government borrowing and inflation look set to moderate for the rest of the year according to the report.
It said the looming US Fed rate cut is also likely to support interest in local currency African bonds.
