Nigeria’s US Dollar Bond Yield Surges To 10%

Prior to the release of the May 2024 inflation report, selloffs in the foreign debt capital market caused the average yield on Nigerian government Eurobonds to increase by nine basis points on Monday.

Fixed income specialists claim that the increase came after a sell-off of US dollar bonds issued by Nigeria, which were traded in the secondary part of the international debt market.

It seems that foreign investors are assessing Nigeria’s shifting macroeconomic dynamics with the hope that interest rates and inflation would continue to rise in the first half of 2024.

The surge in demand for foreign currency to pay import bills has caused the exchange rate to suffer more than the market had anticipated. Conversely, the foreign exchange market continues to struggle with US dollar liquidity. This has continued in spite of the apex bank intervention.

The good, or rather the bad news depending from whose side is being viewed is that the decision to float the naira comes with elimination of capital control measures.

The free movement of foreign currency, in and out, of the country has reflated foreign investors’ confidence. However, historical antecedent confirmed this hasn’t helped the country in FX management.

With the macroeconomic data, foreign investors have been seeking rates on Nigeria’s assets repriced to compensate for high inflation and double digit high interest rate. On the contrary, spot rates on OMO, Nigerian Treasury bills have been on decline since apex bank lure foreign portfolios investors into the market in March – with high spot rates on bills.

In its market update, Cowry Asset Management limited told investors that the sovereign Eurobonds market was predominantly bearish across maturities, thus pushing the average yield higher by 9bps to 9.99%.

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