October 22, 2018

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Why You Should Buy Bonds Now!

Why You Should Buy Bonds Now!

For a while now, the Nigerian stock market has been struggling. Although prices of crude seem to be going up, inflation is suddenly on the rise. The national debt is increasing and upcoming election is causing an increase in political risk that may push the market further downward.

Interest rates, on the other hand, have been inching up across all tenors even as the CBN retains interest rate at 14%. As many investors already know, when yield inches up, bond prices move down, in an opposite direction.

As bond prices drop following rising rates, investors may be presented with opportunities to add to their bond investments especially those that intend to hold such bond till maturity.

The Relationship Between Interest Rate and Bond Prices could give an indication of the right time to buy bonds. As is widely known, there is an inverse relationship between interest rate and bond prices, such that when interest rates rise, bond prices fall and vice versa. Like everything precious, it is always in the best interest of the buyer to buy low, when prices are falling.

This relationship being played out today in the Nigerian bond market could indicate that this is a good time to buy, especially if you plan to hold them until they mature.

There is a clear indication that interest rates will continue to rise at a slow rate at least between now and when a new government takes hold and restores certainty, if at all. The CBN has indicated by its latest action that it may not increase interest rate any time soon given the sudden rise in inflation, but they may be forced to, given the present economic health of the country.

 

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