Nigeria’s sovereign Eurobond yields climbed last week as foreign portfolio investors (FPIs) reacted to the U.S. Federal Reserve’s latest rate decision, reflecting shifting global risk sentiment Sell-offs across short-, mid-, and long-term maturities pushed benchmark yields up by 9 basis points, settling at 19.51% on Friday. The financial markets broadly responded to the Fed’s meeting, ongoing geopolitical tensions, and new tariff impositions.
Although the Fed maintained interest rates at 4.50%, Chair Jerome Powell hinted at potential rate cuts, triggering initial market optimism. However, profit-taking and persistent geopolitical concerns later weighed on Sub-Saharan African (SSA) Eurobonds, reversing earlier gains.
According to Cowry Asset Limited, investor sentiment toward Nigerian Eurobonds fluctuated as market participants assessed the impact of these developments on dollar-denominated assets. Notably, yields on JAN-31, FEB-30, and NOV-27 bonds rose, reflecting heightened caution.
Midweek, market sentiment briefly turned bullish following a recovery in oil prices and indications from the Fed of two possible rate cuts later this year. However, by Friday, bearish sentiment resurfaced, with the steepest yield increases recorded in Jan-31 (+18bps) and Feb-32 (+14bps) instruments, particularly affecting mid-term bonds.
U.S. Treasury Market and Global Economic Outlook
Meanwhile, the U.S. 10-year Treasury yield edged higher on Friday but remained within the tight range observed throughout March. Investors balanced concerns over the economic impact of tariffs with expectations that the Fed would keep rates steady in the near term.
Uncertainty lingers over whether the new tariffs will drive inflation higher while slowing economic growth. Additionally, federal government layoffs are expected to push unemployment rates upward. However, these effects have yet to be fully reflected in economic data, leaving both investors and the Fed in a wait-and-see mode.
Molly Brooks, U.S. rates strategist at TD Securities, noted that the market currently lacks conviction, a sentiment echoed by Fed Chair Powell, who described the uncertainty as “unusually elevated.”
Yields initially declined on Friday before rebounding after President Donald Trump announced that his top trade negotiator would hold talks with his Chinese counterpart next week. While reaffirming his commitment to reducing the U.S. trade deficit, Trump indicated flexibility in tariff policies, with new reciprocal trade levies set to take effect on April 2.
New York Fed President John Williams stated that it is still too early to determine the inflationary impact of tariffs. He also acknowledged rising economic risks, reinforcing the Fed’s cautious stance on future monetary policy adjustments.
Fed’s Balance Sheet and Treasury Auctions
The Fed’s plan to slow the pace of quantitative tightening has provided some support to the bond market. On Wednesday, the central bank announced that it would reduce the speed of its balance sheet drawdown due to liquidity concerns, particularly as the government faces ongoing borrowing limit challenges.
However, Fed Governor Christopher Waller opposed the move, arguing that banking system reserves remain ample.
By the end of Friday’s trading session:
- The benchmark U.S. 10-year Treasury yield was up 2.1 basis points at 4.254%, staying within the 4.106%–4.353% range observed since late February.
- The 2-year Treasury yield, closely tied to interest rate expectations, fell slightly by 0.7 basis points to 3.95%.
- The yield curve between 2-year and 10-year notes steepened by around 3 basis points to 30.3 basis points.
Looking ahead, the U.S. Treasury plans to auction $183 billion in short- and intermediate-term debt next week, including:
- $69 billion in 2-year notes on Tuesday,
- $70 billion in 5-year notes on Wednesday, and
- $44 billion in 7-year notes on Thursday.
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