Johannesburg - Nigerian bonds are expected to extend a six-week rally as the country's debt is included from Monday in a JP Morgan government bond index.
Dealers said yields on Nigerian debt have plummeted more than 300 basis points since the mid-August announcement that Nigeria would be included in the JP Morgan Government Bond Index - Emerging Markets..
Yields fell by 20-30 basis points in the past week alone, they said.
They expect inclusion in the index to continue driving sustained demand for Nigerian debt in the weeks ahead. Nigeria will be brought into the index in three phases from Oct. 1 to Dec. 3, the bank has said.
"We expect yields to come down further as more offshore investors scramble for Nigeria's bonds in the coming days," one dealer said.
FBN Capital said in a research note that slowing inflation would also support Nigerian bonds.
The consumer inflation rate eased to 11.7 percent year-on-year in August from 12.8 percent in July.
"Our expectation is that yields on naira debt instruments will move within a range in the days ahead," FBN Capital said in the note on Friday.
"Further ahead, we see further legs on the rally in the FGN bond market, given the factor of the JP Morgan index in addition to improving inflation prospects."
Nigeria's central bank this week raised 104.69 billion naira ($665.76 million) in a Treasury bill auction, with yields rising marginally. Total subscriptions amounted to 238.30 billion naira.