YIELD CURVE MODELING FOR ENERGY INFRASTRUCTURE BONDS IN NIGERIA
Oyekanmi, Dele Jerry, Godson, Chukwunwike Mesike, PhD and Lukman Ajijola, PhD
Volume 11 Issue 6
Abstract
The Nigerian energy sector faces persistent financing challenges, as government allocations and commercial loans remain inadequate for large-scale infrastructure projects. Energy infrastructure bonds offer a promising alternative, yet the absence of a structured yield curve model complicates pricing, risk assessment, and investment decisions. This study develops a yield curve model tailored to Nigeria’s energy bond market, integrating market data, macroeconomic indicators, and statistical modeling techniques to enhance valuation accuracy and risk management. The research employs the Nelson-Siegel, Svensson, and Vasicek models to estimate yield curves, while risk-adjusted return measures such as the Sharpe Ratio assess bond attractiveness. Scenario analysis explores bond performance under varying inflationary conditions, providing valuable insights for policymakers and investors. Findings reveal that inflation significantly erodes real yields, widening the spread between corporate and government bonds. The study recommends inflation-linked bonds, enhanced monetary policy coordination, and diversification of energy bond offerings to foster investment growth. By addressing critical gaps in Nigeria’s bond market, this research contributes to energy economics, fixed-income securities, and emerging market investment strategies. Keywords: Energy Infrastructure Bonds, Fixed-Income Securities, Nigerian Bond Market, Risk-Adjusted Returns, Yield Curve Modeling.
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