Nigeria’s government Eurobond yield rose in the international market as foreign investors assessed the impact of the US Fed rate drop on their portfolio returns.
Foreign investors may begin to increase their bets on African Eurobond assets and local bonds with competitive returns in the coming months, owing to the Fed’s dovish stance on interest rates later this year.
The US Federal Reserve cut rates by 50 basis points for the first time since 2020, signifying a shift away from its aggressive monetary policy approach and bringing fed fund rates down to the 4.75 – 5% range.
Analysts predicted that the time for rate market competition would come with the US’s dovish monetary policy stance, which began on Wednesday.
US Treasury yield increase as market digested rate hike. Volatility in the bond market has been running high since the Fed started hiking rates in 2022, causing historical losses in bonds and whiplash across financial markets.
The 2-year US Treasury yield rose 0.011 percentage points to 3.602%. The 30-year US Treasury yield rose 0.054 percentage points to 4.007%. Some analysts told MarketForces Africa that African sovereign US dollar bonds would rally as foreign investors would begin to move funds around.
Analysts identify Nigeria, Egypt, and South Africa among other countries that will see inflows of hot monies from offshore investors seeking alpha on funds.
In Nigeria’s sovereign Eurobonds market, sell pressure at the short, mid, and long ends of the yield curve led to a 0.07% increase in the average yield to 9.70%, according to analysts at Cowry Asset Limited.
The SSA Eurobonds closed bearish today. Most investors remained skeptical about the magnitude of the rate cut at today’s FOMC meeting. However, a few buyers were interested in some Nigerian and Angola papers, picking up some of the attractive prices.
On average, the mid-yield across the Nigerian curve increased by 8 bps to 9.66%, according to analysts at AIICO Capital Limited. Due to selloffs witnessed in the international capital market, the average yield increased by +4 bps to close at 10% last week.
The trading activities in the market toughened after the European Central Bank (ECB) voted unanimously to cut its key policy rates. The main refinancing operations rate was lowered down to 3.65% from 4.25%, the deposit facility rate to 3.50% vs 3.75%, and the marginal lending rate to 3.90% vs 4.50%.
The ECB reaffirmed its dedication to achieving its 2% inflation target as risks to the inflation outlook ease. U.S. Treasury yields rose in choppy trading. The benchmark 10-year yield rose 7.1 bps to 3.713% after earlier hitting its highest in more than a week.
