Nigeria is likely to issue more bonds in 2014 and at higher yields as the country’s spending increases ahead of the 2015 general election.

This would exacerbate the fiscal owes that the leading oil producer in Africa has grappled with for most of this year.

“A key concern is that the authorities will eventually be forced to raise higher bond volumes from the market as the country moves closer to the 2015 polls, with the potential to put further upward pressure on long-dated yields,” BusinessDay quoted a recent note by Samir Gadio, an emerging markets strategist.

“This scenario however assumes that there is no cut in formal policy rates in half year H2 2014 which at the moment remains speculative, but however represents a risk to exchange rate stability that cannot be fully ignored.”

Central Bank of Nigeria (CBN) governor Lamido Sanusi has been keen to ensuring a stable exchange rate regime until the end of his term in June 2014, suggesting that the regulator will step in to address any short-term pronounced weakness of the naira over the next six months.

“Without a renewed foreign bid for bonds, and also considering the increasingly duration-averse domestic positioning, further gains in this part of the curve look less likely in coming months,” Gadio said.

“This is despite the firm single-digit inflation path (7.9 percent y/y in Nov) expected in the medium term and the elevated real rates on offer that (domestic) bondholders continue to largely discount.”