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Nigeria Naira-denominated bonds with an 8.6% total return in July is the best performance among the 23 countries in the Bloomberg EM Local Currency Government Universal Index both for the month and the year.
The July rally in naira bonds extends year-to-date gains to 26%, compared with an emerging-market average of 7.1%. That partially recoups a 40% loss suffered by investors last year.
Since coming to power in May 2023, Nigerian President Bola Tinubu has eliminated fuel subsidies weighing on the government’s budget.
He followed it up with a tax overhaul, while the central bank has allowed the naira to trade more freely.
The measures have helped to reduce the fiscal deficit, boost reserves and keep the current account in surplus. And investors are just beginning to back the reforms, after staying on the sidelines for most of 2024.
Government revenues increased 43% in the first half compared to the prior period, and recent tax changes are seen boosting revenue collections further.
A rebasing that increased Nigeria’s gross domestic product by 30% has improved debt ratios and opened the room for better ratings and fresh borrowing.
Inflation has fallen for a third straight month in June to 22.2%, while the central bank has held the benchmark rate at 27.5%.
Despite recent gains, Nigeria’s local bonds are “still attractive,” said Aurelie Martin, a fixed-income analyst at Ninety One.
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