By Elizabeth Adegbesan

Countries and organisations that plan to borrow money will pay higher interest rates due to rising yields on bonds. FSDH Merchant Bank made this projection in its weekly insight saying that borrowing cost and bond yields in financial markets would continue to increase due to continues changes in monetary policy of developed countries.

The bank stated: “FSDH Research expects interest rates and yields in the global financial market to increase further as the normalization of monetary policy in advanced countries continues.

Banking hall

“Countries or corporates that plan to raise money from the international market may pay higher interest rates because of rising yields. Countries in emerging markets may also adjust the yields on their fixed income securities to sustain the interests of investors, both local and foreign, in the instruments.

“The Federal Open Market Committee (FOMC) of the United States Federal Reserve (The Fed) increased the Federal Funds Rate (Fed Rate) by 25 basis points to 1.8 percent-2.0 percent at its June 2018 meeting.

“The increase in the Fed Rate is in line with the expectation of FSDH Research. We expect two more rate hikes in 2018, possibly in September and December, as the fundamentals of the US economy improve. “FSDH Research observes an inverse relationship between the movements in yields on FGN Bonds and US Treasury Notes over the last twelve months.

“The strategy of the Debt Management Office (DMO) to issue more of long term debt than short term debt and to increase the proportion of the external debt in the total debt stock, was the major reason for the inverse yield movement.

“We expect the relationship between the US Treasury Note and the FGN Bond to change as additional rate hikes are announced in the US and the Federal Government of Nigeria (FGN) starts to fund the 2018 budget deficit.”