In the wake of economic uncertainty, Nigeria’s US dollar bond saw selloffs across tenors, reversing the prior trend seen in the global debt capital market. Foreign portfolio investors (FPIs) stopped buying Nigerian government Eurobonds last week due to a change in attitude and macroeconomic worries.
The average yield climbed by 77 basis points, according to traders, as a result of selloffs witnessed across different maturities. However, the cost of US dollar-denominated federal government bonds increased.
Market data showed that the bulk of Nigeria’s US dollar bonds were yielding more than 11%. The Nigerian government has persisted in its attempts to position the continent’s largest economy in terms of GDP size for success.
President Bola Tinubu has signalled an intention to drive growth by removing bottlenecks with dual reforms that heightened economic pain but applauded by global rating agencies, investment banking firms and global index services providers.
But despite a decision to float the local currency using a willing buyer, willing seller approach, the naira has lost a great deal in 2023 with no respite in sight due to foreign currency shortage in the economy.
“Nigeria must strive to pump more oil to meet its OPEC+ quota, raising hydrocarbon sales is the best bet due to relatively overdependence on oil export which has a direct connection with economic growth…
“Foreign capital raise is a bad bet now, but then government can work around other external funding with lower debt service costs to support gross external reserves position, offset FX backlog and then provide market intervention, support for the naira”, Research analysts at LSintelligence Associates said in an email correspondence.
There were some buying activities in the local bond market. Last week, fixed interest securities traders at CardinalStone reported that the average yield rose marginally by a basis point to close higher.
Trading activities on FGN Bonds were predominantly bullish amidst a dearth of alternative investment windows. Yields on various maturities inched downward as prices of bond papers increased at a different pace depending on investment duration choices.
Notably, 10-year FGN bonds sunk by two basis points, 15-year FGN bonds sloped downward by three basis points and 20-year instruments saw a five basis point decline in yield, according to Cowry Asset market report.
Conversely, the 30-year instrument exhibited relative stability, with yields remaining flat from the prior week. Overall, investor sentiment in the long-dated debt instruments was notably positive, resulting in closing yields of 13.23%, 14.93%, 15.36%, and 15.83% for the respective maturities.
Fixed income analysts spotted moderate buying interest at the mid-segment of the curve. Especially on the July 2030 and April 2032 papers, while the short and long ends of the curve closed flat.
Across the benchmark curve last week, traders said the average yield was unchanged at the short and long ends but expanded at the mid-segment.
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