Interest Rate: PFAs hike investment in corporate bonds by 38% to N2.3trn

Pension Funds Administrators (PFAs), the largest investment group in Nigeria, have increased their investments in corporate bonds in order to take advantage of the high interest rate environment triggered by the hike in the Monetary Policy Rate, by Central Bank of Nigeria, CBN.

CBN had further raised MPR, which is the benchmark for interest rates in the country to 24.75% last month, thus pushing up returns on fixed income securities higher.

Vanguard’s findings from the data released by National Pension Commission, (PenCom) shows that PFAs’ investments in Corporate Debt Securities rose Year-on-Year, YoY, by    38.0 %    to N2.304 trillion in the   two months    ended February 2024 from N1.611 trillion in the corresponding period in 2023.

Furthermore, PFAs’ investments allocation to Corporate Debt Securities accounted for 11.7 % of the total Pension Fund Asset during the period under review, which stood at N19.759 trillion.

Analysis of the investment in Corporate Debt Securities for February 2024 showed that Hold to Maturity, HTM Corporate Bonds stood at N1.415 trillion, representing 61.4% of the total Corporate Debt Securities, followed by Available for Sale, AFS Corporate Bonds recording N871.375 billion and accounted for 37.8% of the total    Corporate Debt Securities. The Corporate Infrastructure Bonds recorded N15.918 billion to account for 0.7% of the Corporate Debt Securities, while Corporate Green Bonds recorded the lowest vale posting N1.815 billion to account for 0.07% of the total Corporate Debt Securities.

Reacting to this development, analyst and Vice Executive Chairman, Highcap Securities Limited, David Adonri, said: “The greater investment in Corporate Debt Securities is attributed to the rising MPR, which is the bench mark in determining the interest rate for investment in securities.

“The rise in PFA investment in Corporate Debt Securities could also be attributed to safety in fixed income. Attention of institutional investors also shifted to debt where FGN is also active. Perhaps also, PFAs were reducing their exposure to equities, following rate hike by the CBN. With the recent rate hike by CBN the possibility is high that financial assets will generally migrate to the safety of debt and high return.”

In his own reaction, the Chief Executive Officer, APT Securities & Funds Limited, Mallam Garba said: “PFAs increasing their investment in bonds is as a result of the continuous hike in MPR. The rise in MPR to 24.75 % could further attract many of the investment to fixed income instruments.”