NIGERIAS BONDS RISE AS TINUBU WINS ELECTION

On February 23, 2023, Nigeria held its presidential elections, and Bola Ahmed Tinubu of the All-Progressives Congress (APC) emerged as the winner. 

Tinubu's victory was greeted with mixed reactions from Nigerians, but one thing that was certain was the immediate positive impact on the country's bonds. This post explores the rise in Nigeria's bonds following Tinubu's election win.

Before we delve into the rise in Nigeria's bonds, let's first look at what bonds are and how they work. A bond is a debt security that is issued by a government or corporation to raise money. 

When you buy a bond, you are lending money to the issuer, who agrees to pay you interest and return your principal when the bond matures. 

Bonds are low-risk investments because they are backed by the creditworthiness of the issuer, and it has been issued in Nigeria for almost 50 years to raise money to fund budget deficits and finance infrastructure projects.

According to Security Exchange Commission, Nigeria has been issuing bonds as far back as 1978 and the country's bond market has been growing rapidly since, with the issuance of Eurobonds (bonds denominated in foreign currencies) becoming increasingly popular in recent years.

The nation's bonds have benefited from the election of Bola Ahmed Tinubu as Nigeria's next president. 

The first explanation for this is that Tinubu is regarded as a business-friendly politician who will probably implement measures to draw in international investors. This is significant since a huge chunk of demand for Nigeria's bonds comes from international investors.

Tinubu has promised to implement policies that will create a business-friendly environment in Nigeria. He has talked about reducing the cost of doing business, creating a one-stop shop for investors, and improving infrastructure. 

These policies are likely to attract foreign investors to Nigeria, who will in turn increase demand for the country's bonds.

The second reason for the rise in Nigeria's bonds is that Tinubu's victory has brought political stability to the country. Nigeria has a history of political instability, which has led to a lack of investor confidence in the country. However, Tinubu's victory has been seen as a peaceful transition of power by many, which has increased investor confidence in Nigeria.

Investors are attracted to stable countries because they are less likely to default on their debt obligations. This means that Nigeria's bonds are seen as less risky, which has led to an increase in demand for them. 

The increased demand for Nigeria's bonds has led to a rise in their prices, which means that investors who bought the bonds before the election are now making a profit.

The third reason for the rise in Nigeria's bonds is the expectation of a stronger currency. Nigeria's currency, the naira, has been volatile in recent years, with fluctuations in oil prices and political instability affecting its value. 

However, with Tinubu's victory, there is an optimism that the naira will become stronger.

A stronger currency is important for Nigeria's bond market because it reduces the risk of currency fluctuations. When investors buy bonds denominated in a foreign currency, they are exposed to currency risk.

If the currency of the issuer depreciates, the value of the bond will also fall. However, if the currency of the issuer strengthens, the value of the bond will rise.

In conclusion, Nigeria's bonds have risen following Tinubu's election win for several reasons. Firstly, Tinubu is seen as a pro-business leader who is likely to implement policies that will attract foreign investors. 

Secondly, Tinubu's victory has brought political stability to the country, which has increased investor confidence. Finally, there is an expectation of a stronger currency, which has reduced the risk of currency fluctuations for investors. 

These factors have combined to create a positive outlook for Nigeria's bond market, which is likely to attract more investors in the future.