As the bullish momentum for Nigerian fixed income instruments continue this week following the effect of peaceful post-election which has boost foreign investors’ confidence, analysts have advised investors to key into short or medium term-to-maturity bond instruments trading at reasonable discount to par value.
This is contained in a report released by analysts at Cowry Asset Management Limited and Afrinvest Securities Limited.
According to analysts at Afrinvest, there are indications that foreign investors may be set to return to the market even as local investors garner the requisite confidence to continue to overweight on bonds given their relative safe haven, even as yields have assumed a downward trend post-election announcement.
The bond market last week sustained a generally upbeat mood following the successful completion of Nigeria’s 2015 general elections which got investors excited. The high country risk premium which has sustained yields at a pre-election average of 15.4 percent is noticeably moderating given the performance of bonds in the week.
Average yields for bond instruments in the week systematically moderated in all the trading days of the week as it settled at 14.3% from 15.0 percent in the previous week.
At the close of market, FMDQ’s total market bond index shows a week-on-week (w-o-w) gain of 5.1% – the highest w-o-w return so far in the year. In turn, the sovereign bond yield curve showed a significant moderation as the curve gradually shifts from the realm of partial inversion to the region of normality. Investors’ apprehension about possible outbreak of violence post-elections has been doused with confidence returning to the bond market space.
At the foreign exchange market, analysts at Cowry Asset said, “We expect the naira to partially reverse last week’s gains as businesses resume after the election hiatus and as businesses place orders to take advantage of the low exchange rates.”
Last week, the naira at the inter-bank closed flat w-o-w at N199.10/US$1 (same as that of the previous week), having opened the week at N199.11/US$1 and was sold at N197.00/US$1 by CBN.
The pressure on the naira moderated last week as the economy stabilised following the announcement of the presidential election results evident in the 1 kobo appreciation of the naira to N199.10/US$1 on Tuesday.
The sale of dollars by the central bank to defend the naira has led to the decline of the foreign exchange reserves to US$29.8 billion bringing YTD and w-o-w losses to 13.6% and 0.2%, respectively.
Corporate customers who had earlier amassed dollars before the presidential election in order to hedge against anticipated political unrest have reduced their demands for the greenback and chosen to convert to the local unit.
