Why Investors Are Seeking Refugee In Fixed Income


As Nigeria’s economy hover around uncertainties, investors are not taking chances to prevent their investment from taking too much impairment.

The Debt Management Office, DMO just released its data on the debt auction for the month of July. The data shows that investors are not just taking a pessimistic view of the market but running away from high risk instruments such as equities and mutual funds, settling for fixed income products like treasury bills and bonds.

For a 5 year tenor bond of NGN40.00 billion to mature by July 15, 2021, investors oversubscribed the instrument with a total bid of NGN63.15 billion. To further accentuate their sentiments for the market, investors bidded with 10.0000% -17.0000%. This shows that investors are majorly taking cover and hedging against inflation.

More importantly, the 20 year tenor of NGN40.00 billion bond shows the bigger picture of investors confidence in the market. For an instrument meant to mature by March 18, 2036, investors bidded with NGN105.31 billion setting their coupon rates at 12.0000% – 17.0000%.

The Nigerian Stock Exchange has already declined by 23.8% year to date. It is clear for anyone to see that investors are no longer going to seat back and watch their investment deteriorate in the equities market.

Two months ago, Morgan Stanley with an NGN100 billion value of Nigeria financial instruments in its Morgan Stanley Capital International Index, MSCI had concluded to retain Nigeria in its index but reduce weighting and delist certain instruments that do not meet its criteria for the index.

In the coming months, the over-subscription of the sovereign debt market might retain the bearish sentiment in the equities market. For a market that is still shallow and less connected to various core of the economy, it is yet another blow that the market does not need now.

To help the equities market, inflation has to be dealt with by the CBN through various means. The higher the inflation rate go, the more investors’ appetite for safe havens in treasury bills and bonds grows.



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