Over the last two years, the Nigeria government embarked on massive domestic borrowings to fund budget deficit and stimulate aggregate demand, after the economy slipped into recession in 2016.
General price level also became elevated as headline inflation rate touched record highs, thus, the interest rate in the debt market entered the double-digit region, ultimately crowding out private participation. The CBN also responded by hiking rates, however, the twin impact of improved policy environment in the domestic economy and recovery in the global oil market steered the nation out of recession in Q2-17.
Now that the economy had turned the corner and various macroeconomic indicators are improving, the government has shifted its focus to the foreign debt market with the cheaper cost of debt. This strategy is driving the recent moderation in yields (now heading to a single digit), creating an opportunity for corporate issuers to return to the local debt market.
With the expectation of an imminent rate cut, likely to drag interest rates further down, investors might be better positioned, if they lock-in rates in short-term bills ahead of election uncertainties that should drive rates slightly higher over Q4-18 and Q1-19.