A bond dealer, Egie Akpata has predicted that with at least 7 sub-national bonds transactions in various stages of completion, state bonds would grow beyond N200billion in 2012 compared to a somewhat disappointing N92bil raised in 2011.
On the contrary, corporate bond market will remain cold as long as there are risk- free rates of over 16 percent,. Egie who is Head, Securities Market, UBA however warned that some forward thinking corporate borrowers to enter the market later in 2012 the Federal government bond yields should be lower.
For the TBs, he foresees persistent high TBill rates of 16-17% for 182-364 day tenure, it is conceivable that 7-10 year DMO bond issues will keep being issued at around 16% yield until there is a change in the interest rate direction from the CBN.
Yields last year moved up dramatically from their Q1 lows. The DMO issued the April 2015 bond at 11.13% in January. By October, that same bond was issued at a yield of 16.3%.
The May 2018 bond was issued in September at 11.49%. The same bond was issued at 18% in the October DMO auction. Performance in terms of price moves inversely to yields. So those who are holding bonds bought before Q4 are sitting on big mark-to-market losses due to the drop in prices and rise in yields from October, 2011.
Investors who expect migration of investors from fixed income to equities market because of the reforms in the financial market, they may be mistaken. According to the UBA bond dealer, ‘I do not expect a serious migration from the bond to equity markets. The bond market is a safe haven that is now yielding a risk free 16% on 7-10 year tenor. There are simply no positive short term catalysts that can help generate those kind of risk adjusted returns in the equity market’.
According to him, money invested at 16% will double every 4.5 years assuming the coupon can be reinvested at 16 percent.
