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Nigeria’s US dollar bonds have seen a wave of selloffs across various tenors, marking a shift in the previous trend observed in the international debt capital market. The selloffs come amidst economic uncertainties, reversing the fortunes of these bonds.
In the past week, foreign portfolio investors (FPIs) showed reduced enthusiasm for Nigerian government Eurobonds as sentiment turned tepid, influenced by macroeconomic uncertainties. This change in sentiment had a notable impact on the bonds.
Traders reported selloffs across different maturities, leading to a 77 basis point increase in the average yield. Consequently, the prices of Federal Government US dollar-denominated bonds also dipped.
Market data indicates that a significant portion of Nigeria’s US dollar bonds were trading at yields above 11%. Despite the Nigerian government’s ongoing efforts to position Africa’s largest economy for prosperity, various challenges persist.
President Bola Tinubu has unveiled plans to stimulate growth by addressing bottlenecks through comprehensive reforms that, while causing some economic discomfort, have garnered recognition from global rating agencies, investment banks, and global index service providers.
However, the devaluation of the naira in 2023, driven by a persistent foreign currency shortage, continues to create challenges. To address this, experts suggest that Nigeria should focus on increasing oil production to meet its OPEC+ quota. Diversifying funding sources with lower debt service costs, boosting gross external reserves, addressing FX backlog, and providing support for the naira are seen as crucial steps.
While foreign capital inflows currently face challenges, the local bond market has witnessed some buying activity. Fixed interest securities traders at CardinalStone noted a marginal one basis point increase in the average yield, with trading activities in FGN Bonds primarily bullish due to limited alternative investment options.
Yields on different maturities moved lower, although the pace of increase varied depending on the investment duration. Notably, 10-year FGN bonds saw a two basis point decrease, 15-year FGN bonds experienced a three basis point drop in yield, and 20-year instruments observed a five basis point decline.
Conversely, the 30-year instrument remained relatively stable, with yields maintaining consistency from the previous week. Overall, investor sentiment in long-dated debt instruments remained positive, leading to closing yields of 13.23%, 14.93%, 15.36%, and 15.83% for respective maturities.
Fixed income analysts noted moderate buying interest in the mid-segment of the curve, particularly for the July 2030 and April 2032 bonds, while the short and long ends of the curve remained largely unchanged.
Throughout the benchmark curve, the average yield remained steady at the short and long ends but expanded in the mid-segment.
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