By Chinwendu Obienyi
As the global economy continues to adjust to changing trade dynamics, economic experts have warned that the local fixed income market may face a cooling period due to several factors related to evolving U.S. tariffs and trade policy shifts.
This is coming after a Proshare report titled; Nigerian Capital Markets Q1 2025 review revealed that the Nigerian fixed income market was bullish in the first quarter (Q1) of 2025 owing to inflation moderation, exchange rate stability, and higher rates on new issues which stimulated demand.
The report added that the expectation of lower interest rates in the future prompted investors to take advantage of the current high rates.
It said, “The short-term instruments witnessed the highest demand, with the Nigerian Treasury Bill average benchmark yield dropping to 19.35 per cent on March 28, 2025, from 25.53 per cent on January 2, 2025.
“The FGN bond market stood in inverted yield curve territory, with investors showing a preference for long-dated instruments, which pulled the average benchmark yield down to 18.54 per cent as of March 28, 2025, from 19.16 per cent on January 2, 2025”.
However, with US President Donald Trump, unveiling his most expansive tariffs to date, targeting over 100 trading partners including Nigeria, the report expressed concerns of a global trade war and warned that the bullish trend in the fixed income market may slow down in the second quarter (Q2) of 2025.
The report said, “Going into Q2 2025, the implications of the 14 per cent U.S tariffs on Nigeria’s exports and lower crude oil prices on the country’s FX revenue may slow down the bullish momentum in the local fixed income market. However, the improved net foreign reserves (NFR) and naira stability could mitigate the rising debt sustainability risks that could trigger sell-offs.”
The market is not expected to reverse completely as there will still be opportunities for careful investors who can adapt to shifting conditions.
However, this is a case with fixed-income securities in more stable, developed markets which may remain attractive, especially if inflation expectations stabilize and interest rates remain relatively lower. However, investors will need to be more selective, focusing on inflation-protected bonds and short-duration instruments to minimize risks associated with rising costs and geopolitical uncertainties.