Foreign Investors Pump Money Into Nigeria USD Bonds

Trading figures announced on Friday indicate that the benchmark yield decreased as foreign investors were more interested in Nigeria’s sovereign US dollar bonds on the international market. In order to align their interests, portfolio holders rotate their interest among tenor instruments; a similar trend was seen in the secondary market for Nigerian bonds.

Due to recent statistics suggesting a weakening economy, long-term U.S. bond rates decreased, with the 30-year Treasury rate seeing its largest 4-week decline of the year. According to statistics from the Treasury International Capital System, foreign investors sold a net $1.7 billion worth of US Treasury securities in September, marking the first net outflow since May 2021.

On Friday, the US 2-Year Rate dropped by 3.3 basis points to 4.81% while the US 10-year Treasury yield decreased by 4.4 basis points to 4.4%. The average yield on the Nigerian Eurobond dropped by 16 basis points to 10.96% as a result of the purchasing attitude that was seen on the short, mid, and long ends of the yield curve, according to an update from Cowry Asset Limited to investors.

With a GDP estimated at $450 billion, the largest economy in Africa intends to spend N26.01 trillion on more than 200 million Nigerians by 2024. The country’s authorized fiscal strategy document and Medium-Term Expenditure Framework (MTEF) for 2024–2026 reveal that the expenditure plan is 14.8% more than the approved budget for 2023.

Unlike previous budget estimates, the proposed capital expenditure estimate is lower by -5.4% at N6.8 trillion versus N7.2 trillion budgeted for 2023, according to investment banking analysts’ review.

The MTEF’s underlying assumptions indicate that the FGN expects an oil price benchmark of USD73.9 per barrel with an oil production level of 1.78 million barrels per day at an exchange rate of N700.

The inflation rate is expected to be around 21.4% with a GDP growth rate of 3.76% year on year in 2024 -with the bulk of the projected growth expected to come from the non-oil sector.

Nigeria’s budget deficit is projected at N9.05 trillion for next year, a decline from the N11.6 trillion budgeted for fiscal year 2023. The deficit is expected to be financed by new borrowings totalling N7.8 trillion split into domestic N6.04 trillion and external: N1.76 trillion.

In a comment, Coronation Research analysts said they expect reliance on domestic borrowing, as the International Capital Market remains expensive for emerging economies, like Nigeria. Futureview US Dollar Fund Return Hits 7.42%

In the secondary market for FGN Bonds, trading activities ended on a bullish note. As a result of buying interest, the average yield declined by 6 basis points (bps) to close at 15.73%. Traders noted that there was positive Interest in the MAR-24 instrument.

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