Attractive prospects for FGN bonds in 2013 – FBN Capital

By PETER EGWUATU

FGN bonds enjoyed a strong run in second half (H2) of 2012, and our take is that investors are set to enjoy further gains this year, FBN Capital analysts have said.

The analysts from FBN Capital stated that the largest single driver in the year 2012 was the announcement in August 2012 that JP Morgan would add three FGN debt issues to its local currency government bond index in stages from 01 October.

Finance Minister, Mrs. Ngozi Okonjo-Iweala

According to the analysts in their review of 2012 said, “ There has since been a further, smaller boost with the news that Nigeria is to be included in the comparable Barclays index with effect from March. Both developments automatically bring foreign investors, most of whom would not otherwise accept Nigerian risk.

The global landscape remains favourable to investment in high-yielding frontier markets such as Nigeria. Monetary policy is accommodative across the developed world, and the avoidance of the fiscal cliff in the US, if not definitive, means that risk is back “on” for traders. The leading central banks are anxious for banks to lend yet unable to direct that lending as they would wish (to the real economies under their jurisdiction).”

“ We should note some domestic positives. Inflation is set to fall, likely to single digits Year on Year(Y/Y) this quarter 2013. The naira exchange rate has stabilised, too.

“The supply of new bonds will be lower this year as the FGN increases its external borrowing to take advantage of the low Eurobond yields” the analysts emphasized.