Nigeria Eurobonds, Local Notes Hit by Selling Waves

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Nigeria Eurobonds, Local Notes Hit by Selling Waves

Nigeria Eurobonds, Local Notes Hit by Selling Waves

At the international market, foreign portfolio investors stopped their position in the Nigeria Eurobond with waves of selloffs that pushed the yield benchmark higher amidst uncertainties in the local economy. Prices slumped while Nigeria’s Eurobond yield swung higher.

Similar activities were witnessed in the secondary market for local bonds, albeit with bullish tilt. Yield curves were stretched amidst growing economic risks. Dwindling macroeconomic indicators continue to send negative signals to local and foreign investors about Nigeria’s risks.

For years, flows of hot money into the economy has reduced significantly due to unfriendly economic policy and what some market critics call financial repression as the government borrows at below inflation rate.

In Nigeria’s Eurobonds market, there was bearish sentiment across all maturities tracked and was characterized by declines in the value of the Sovereign FGN paper, fixed income analysts at Cowry Asset said.

The wave of selloffs started the previous day before paring losses, with long-term yields pushing higher The fact that higher interest rates in major economies will stay higher for longer to contain inflation, resilient U.S. economic data and a sharp unwinding of traders’ positions for a bond rally were among the drivers for the sharp move.

At the close of the trading session, the average secondary market yield nosedived by 2 basis points, primarily driven by bearish sentiment. The Nigerian economy is passing through a tough phase as reforms stoked economic pressures on key indicators.

The naira is facing pressures from increased demand for the US dollar at the foreign exchange market while the consumer price index continues to maintain an uptrend despite inflation-fighting efforts.

In the local bond market, activity was muted as yields closed flat for all maturities across the curve.  However, sell-offs across the mid-belly of the curve pushed the average yields higher by 3 basis points to close at 14.42%, according to analysts’ note. 

Across the benchmark curve, Cordros Capital said the average yield contracted at the short (-17bps) end following bargain hunting on the MAR-2024 (-85bps) bond.

Meanwhile, it expanded at the mid (+19bps) segment as market participants sold off the APR-2029 (+30bps) bond. Conversely, the average yield was unchanged at the long end. A report from the Central Bank of Nigeria showed that FGN Bonds (comprising new issues and re-openings) worth ₦2,160.00 billion were offered in the first half of 2023.

However, public subscription and sales stood at ₦4,163.94 billion and ₦3,567.42 billion, respectively. In the corresponding period of 2022, FGN Bonds offer, subscription and allotment were ₦1,125.00 billion, ₦2,852.56 billion, and ₦1,805.45 billion, respectively.

The increases were attributable to the government’s strategy to maximize borrowings from the domestic market. Consequently, the total value of FGN Bonds outstanding at end-June 2023 stood at ₦42,405.27 billion, compared with ₦15,626.63 billion at end-June 2022, indicating an increase of ₦26,778.64 billion or 171.37 per cent. #Nigeria Eurobonds, Local Notes Hit by Selling Waves

Naira Devaluation Deepens Economic Crisis in Nigeria

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