MODELLING AND FORECASTING BOND RATE OF NIGERIA ECONOMY USING AUTOREGRESSIVE INTEGRATED MOVING AVERAGE (ARIMA) TECHNIQUES

Abstract

This study is on modelling and forecasting bond rate of Nigeria economy. The bond market in
Nigeria, especially for FGN bonds, facilitates government borrowing to meet monetary policy
goals, infrastructure development, and budget deficits. Autoregressive Integrated Moving
Average (ARIMA) modeling technique was used to analyze and forecast key indicators of the
Nigerian 10-year Federal Government Bond market, specifically focusing on Total Subscription,
Total Successful Bids, and Bond Rate from 2013 to 2023. Using time series analysis in R
software package, the data was tested for stationarity and ARIMA models were then fitted, with
ARIMA(0,1,2)(0,0,2)[12] selected for Total Subscription, ARIMA(0,1,1) for Total Successful
Bids, and ARIMA(1,1,0) for Bond Rate. Model diagnostics, including the Ljung-Box test,
confirmed the adequacy of the fitted models. The resulting forecasts indicated stable future bond
rates around 14.1%, while subscription and bid values showed fluctuations consistent with market
dynamics. The models captured trends, seasonality and short term dependencies effectively. The
study demonstrates that ARIMA modeling offers a robust framework for forecasting bond market
behavior in Nigeria, providing valuable insights for policymakers, investors, and financial
analysts in planning, risk management, and policy