CBN Price Hike: PFAs to Improve Investments in Bonds

CBN Price Hike: PFAs to Improve Investments in Bonds
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CBN Price Hike: PFAs to Improve Investments in Bonds

Pension fund directors (PFAs) in Nigeria are poised to extend their investments in bonds, because the current rate of interest hikes by the Central Financial institution of Nigeria (CBN) are making bonds extra engaging to buyers. The CBN elevated its financial coverage charge (MPR), also referred to as the benchmark rate of interest, by 200 foundation factors (bps) final week, following a 400bps hike in February. This has raised the prospect of upper returns for buyers in bonds, making them extra interesting to PFAs.

In line with trade analysts, increased rates of interest could result in elevated demand for fixed-income devices, together with authorities bonds, with PFAs adjusting their asset allocation methods.

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As of February 2024, over 70 % of pension fund property had been invested in bonds, whereas almost 10 % had been invested in cash market devices, based on Michael Oyebola, an analyst at Cash counsellors and funding skilled at a number one pension fund administrator. The CBN’s current hikes within the MPR imply that fastened earnings returns will enhance, as bond yields are inclined to rise as rates of interest rise. This offers an incentive for PFAs to take a position extra in bonds.

This he stated, “will then results in increased returns for pension funds holding the property. Nevertheless, while this results in increased yields for brand new bonds, current bonds with decrease yields grow to be much less engaging. Because of this, the costs of current bonds within the pension funds’ portfolio could lower.”

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