Naira Bonds Lead Emerging Markets Rally as Tinubu’s Reforms Boost Investor Confidence

Since President Bola Tinubu took office in May 2023, Nigeria’s financial reforms have sparked a remarkable rally in the country’s naira-denominated bonds, making them the top performers among emerging markets this year. With an 8.6% total return in July alone and a 26% gain year-to-date, these bonds have outpaced peers amid a backdrop of rising government revenues, easing inflation, and a more stable currency.

Tinubu’s key moves, phasing out costly fuel subsidies, overhauling the tax system, and allowing the naira to trade more freely, have helped shrink Nigeria’s fiscal deficit, increase foreign reserves, and maintain a current account surplus. Investors, who had largely stayed on the sidelines in 2024, are now backing these reforms as the currency stabilizes and the economic outlook improves.

Boosting optimism further is Nigeria’s recent credit rating upgrade by Moody’s, which raised the country’s rating from Caa1 to B3 due to its improved fiscal health and external balance. This upgrade brings Nigeria closer to being recognized as an investable emerging market, attracting more institutional debt investors to its local bond market.

Despite significant gains, analysts say Nigerian bonds remain attractive thanks to the country’s ongoing macroeconomic improvements, including slowing inflation and expectations of U.S. interest rate cuts. These factors, combined with a more stable naira, set the stage for further rate cuts by Nigeria’s central bank and continued growth in local debt investments.

Source: Business day