Zedcrest: Nigeria’s macro headwinds to impact fixed income yields near term

Nigeria's fixed-income market is set to experience higher yields in the near term as investors navigate through a multitude of macro headwinds. Samuel Aladegbaye, Investment Research Analyst at Zedcrest Wealth, highlighted the factors contributing to this expected surge in fixed income yields during a recent interview on CNBC Africa. With inflationary spikes, increasing debt pressure, and the Central Bank of Nigeria's tightening monetary stance, investors are bracing themselves for a challenging period ahead. Aladegbaye pointed out that the existing deficit of approximately 9 trillion Naira, coupled with the government's efforts to secure an additional 7 trillion Naira in ways and means, are key drivers behind the anticipated rise in yields. The issuance of a 6.2 trillion Naira supplementary budget further adds to the pressure on the fixed-income market. Despite a recent rally in the secondary markets due to reduced supply, the government's continued need to finance its debt obligations remains a concern. The prospect of overselling treasury bills in the fourth quarter raises questions about managing debt service costs and balancing borrowing needs. Aladegbaye emphasized the challenge of striking a balance between borrowing to service debt and keeping debt levels in check. The conversation also touched on investor demand for higher yields against a backdrop of rising inflation, particularly following recent price hikes in petroleum products. As global investors seek higher returns in emerging markets, Nigeria's attractiveness will depend on its ability to offer competitive real returns amidst inflationary pressures. Aladegbaye noted the importance of understanding the macroeconomic landscape and investor behavior in determining fixed income yields. The analyst highlighted the significance of supply expectations in driving market dynamics, emphasizing the need for caution amid evolving market conditions. While acknowledging the complexities and uncertainties ahead, Aladegbaye underscored the crucial role of supply dynamics and investor sentiment in shaping the future trajectory of fixed-income yields.