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ABUJA: Nigerian bonds rallied on Friday and the naira firmed but shares fell on expectations that tight monetary policy would continue after President Muhammadu Buhari nominated central bank governor Godwin Emefiele for a second term.

Bond yields, which move inversely to prices, had fallen across maturities on Thursday after Emefiele's nomination, and extended those falls on Friday.

The 2028, bond fell 16 basis point to 14.20pc while the naira stood slightly firmer at 360.00 to the dollar, compared to around 361.50 before the announcement, traders said.

Local asset managers and insurance firms accounted for much of the bond buying, with some foreign investors in the mix. Some of the local funds were switching from treasuries into bonds, the traders said.

"Emefiele's reappointment has provided support for a rally that started on the bond market this week.

Offshore buyers have welcomed the reappointment," said one trader at the Nigerian unit of an international bank.

Emefiele has overseen an interventionist currency policy at the behest of the presidency, supporting the naira by pumping billions of dollars into the foreign exchange market and keeping liquidity tight to lure investors into the bond market.

"Whether Emefiele's nomination is good for the economy long-term is questionable. Though it renews foreign investor interest in the bond market," another trader said.

STOCKS SINK

Stocks, on the other hand, fell near a two-year low on Friday as investors viewed Buhari's move as a possible sign that he, having won re-election in February, he would maintain policies that have contributed to a low growth rate, analysts said.

Nigeria, sub-Saharan Africa's largest energy producer, entered and exited its first recession in a quarter of a century under Buhari's tenure as global oil prices plummeted and then gradually began to rebound.

Some economists argued that Buhari's handling of the economy exacerbated the downturn.

Buhari starts his second four-year term on May 29 and has pledged to rejuvenate the economy.

"If (Buhari) did not change central bank governor, investors are assuming that there may be no change to the current cabinet.

If that's the case, then we expect more of the same for the next four years, which means that nothing structural will happen in Nigeria," one stockbroker said.

"The stock market is tied to the macro story, which is not showing any signs of real improvement.

Copyright Reuters, 2019