Pressure expected in the long term for Nigerian bonds


“This week we could see further gains in the bond market, with yields going down a little. I think yields could drop today, maybe tomorrow, probably stabilise at the auction and then fall moderately again,” Gadio, an emerging markets strategist at Standard Bank, told CNBC Africa on Monday.

“When you think about it, there’s not really any clear direction going forward because yes, inflation is probably going to remain in single digits in 2013 but at the same time, you have US rates likely to go up which means emerging market bonds will remain under pressure in the medium term.”

Nigeria will hold a debt auction on August 14, 2013 where it plans to issue a three-year and 20-year bond. The bonds will be auctioned at 35 billion naira each.


The auction follows recent developments in the West African nation where a 50 per cent Cash Reserve Ratio was introduced on public sector deposits. It is expected to assess liquidity management in the banking industry as well as restrict some of the effects of private sector borrowing.

“When the CRR on public sector funds was introduced on the 23rd of July, the fear in the market was that there would be a large-scale sell-off in Treasury bills as well as equities but actually [has] not happened. The reason is probably because we haven’t had any new open market operations,” Gadio clarified.

He also explained that Nigeria’s secondary market eased to 14 per cent on August 7 when these developments took effect and that the overall impact was somewhat muted.

“What we saw is that impact to yield shifted down to some extent. We had a rally in bonds by about 60 basis points or so, so we probably had more fear than pain.”