ANALYTICAL STRUCTURE OF NIGERIAN EURO-BOND UNDER SVENSSON’S MODEL

Abstract

The term structure is a pointer to market expectations concerning interest rates through expected variations captured by the projected yield curve where the yield curve is a plot of the closing prices of bonds against their corresponding terms to maturity. This paper aims to forecast the term structure of interest rate on Nigerian Eurobond and then estimate the yield curve as a tool for the measurement of economic growth using the Svensson model to allow flexibility in the model to fit observed data. The statistical tool employed for the analysis of data collected are the Ordinary Least Square method, Spearman rho’s method and an  adjusted for segmenting the data into four quarters with the aim of generating an aggregate yield curve to prove that the gradient of the yield curve, relative to its time to maturity moves proportionally and has a significant effect on the term structure. The approximating yield curve on Nigeria Euro-bond recommends that Nigerian regulatory authorities should monitor the operations of all financial institutions to hedge against uncertainties in the capital market prices which could discourage investors.