Nigeria Bonds in Steep Decline Amid Insecurity, Weak Finances
By Sahabi Abdul and Chuks Emele
Nigerian governments bonds have declined more than 23 percent in value since the start of the year, lagging other investments, as growing insecurity and weak finances take their toll on investor confidence.
The FMDQ bond index, which tracks the performance of these bonds fell from 667.91 at the end of last year, to 513.08 on the last business day on April 30. Investors, wary of the implications of spreading insurgent violence at a time of low oil revenue and poor economic performance, are selling off, traders and analysts said.
“It appears investors, who chased high yields in bond market not too long ago, have developed cold feet,” said Bayo Adigun,a Lagos-based trader for a pension fund. ” The index is showing this.”
Afrinvest’s Nigerian International Debt Fund, ranked as a moderate-risk investment for focusing on federal and state government debt issues, has plunged more than 25 percent since the beginning of the year. Just as the bond index has dropped 31.91 percent from its November 2020 close by the end of April, the NIDF also gave up 33.16 percent of its value within the same period.
“Given the current situation, where the government is using more than 80 percent of its revenue to service debt, I worry to buy any more bonds,” said Musa Ibrahim, an Abuja-based retail investor. “More so when the security situation isn’t proving reassuring.”
Nigeria is struggling to emerge from its second recession in four years, on each occasion caused by the collapse in the export prices of oil, its main export. The government has made up the financing gap by massive borrowing from local and international sources. The country is also wracked by violence by Islamist insurgents in the northeast, widespread banditry in the northwest and central parts of the country and secessionist violence in the southeast.
Even securities rated aggressive and those rated conservative have outperformed government bonds by posting gains, and in worst cases, even smaller losses.
Among moderate-risk funds, NIDF’s year-to-date decline of of more than 25 percent, compares with a 6.92 percent fall by ARM Fixed Income Fund, a 7.07 percent gain by ARM Ethical Fund and a 2.04 percent increase in United Capital Bond Fund.
Among aggressive funds, gains didn’t exceed the 3.34 percent increase of United Capital Equity Fund and losses were no worse than Afrinvest Equity Fund’s 4.29 percent. In the conservative funds category, United Capital Market Fund takes the lead with a 5.74 percent, with Afrinvest’s Pluto’s Fund at 3.39%.