Expectations that the US Fed may lower fund rates in the third quarter of 2024 put pressure on sellers of Nigerian US dollar bonds, also known as sovereign Eurobonds, on the international market.
The high interest rate environment among international central bankers, coupled with increased economic risk and a negative interest yield, hastened a quick flight to safety as inflation continues to undermine Nigeria’s price outlook.
The US bond market is already poised to break out at higher yields due to a range of predictions regarding the US economy and the Fed’s decision to decrease interest rates.
The Nigerian central bank maintained its contractionary stance during the monetary policy committee meeting, leading to a 1.50% hike in the benchmark interest rate. Nevertheless, rate repricing in the local bond market has been sluggish as debt management seeks to reduce the nation’s debt servicing cost.
Foreign investors watching the dynamics raised economic risk associated with their investment, resulting in sell sentiments across Nigeria’s sovereign Eurobonds in the market last week.
The risk off sentiment caused price decline in the Feb-30 US dollar bond, whose yield jumped by 16 basis points, Sep-38 instrument’s yield surged by 15 basis points; and the yield on Feb-32 Eurobond maturities increased by 14 basis points, according to Cowry Asset Management Limited.
Traders stated that the movement in yields across these lines pushed the average yield up by 10 basis points to 9.97%. Elsewhere, the US Treasury yield on short-dated Treasury debt rose faster than on longer-dated Treasury debt.
At the close of trading on Friday, two-year Treasury notes were yielding 47.9 basis points, or hundredths of a percentage point, more than 10-year Treasury debt. That compares with a gap of 45.9 basis points on Thursday and was the biggest differential so far this year.
