The Nigerian bond market delivered healthy returns in 2015, with positive performance across all sectors as measured by the different Bond Index in Nigeria. The primary driver of bond market performance was the low yield that characterized the market at the tail end of the year.
The bond market was also supported by an environment of slow global growth amidst failing oil price, delay in the Buhari administration to come up with a credible economic policy and weakening of the Naira. In an attempt to stimulate the economy, the CBN, for the first time in six years reduced its benchmark interest rate from 13% to 11%. This reduction in interest rate acted in conjunction with the factors noted above to exacerbate an already bullish bond market sending bond prices to their highest for the year in November
The 2015 returns of the various bond index within the bond market are as follows:
Short-term Nigeria Bonds (0-3 Year Bond Index): 15.61%
Intermediate-term Bonds (3
Long-term Bonds (>5 Year Bond Index): 48.24%
This performance picture held true across the market. On the average, sovereign (FGN) Bonds returned19%, Agencies, 14.04% while Sub-National (State) Bonds garnered 11.5%. In the same vain, Corporates and Supra-National Bonds ended the year with performance rates of 11.18% and 18.66% respectively. For detailed information on individual bond performance, click here
On time to maturity basis, long-term bonds outpaced the returns of their short-term counterparts in 2015 as investors’ continued to search for yield.
Outlook for 2016
There is nothing on the horizon to suggest an immediate jump in long-term rates, so it is expected that the bullish stance of the bond market will persist to at least the end of the first quarter of 2016 into most of the second quarter. However, those venturing into long term bonds should be mindful of the risk posed by a rise in interest rate. It may be time to engage in bond laddering strategy by building a portfolio of several bonds with short-term (1 year or less) to intermediate-term maturities (1 to 5 years).