Nigeria’s Eurobond Yields Climb on Fresh Selloffs

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Nigeria’s Eurobond Yields Climb on Fresh Selloffs
Foreign Currencies

Nigeria’s Eurobond Yields Climb on Fresh Selloffs

Nigeria Eurobond prices fell, pushing yields higher, as investors in the international debt capital market reduce their holdings, a portfolio strategy implemented to optimise return on foreign currency-denominated assets.

Yields curve had trended downward in the recent past over buying momentum following the US Federal Reserve’s decision to reduce its hawkish tone and sideway movement in the US dollar index.

In July, the Nigerian government’s 6.375 JUL 12, 2023 Eurobond worth $500 million will mature in the international capital market – with no refinance option. The amount was raised in the foreign market on 12 July 2013.

The asset traded below its issued price, lower by $1.09 as it was exchanged at $98.81 while its corresponding yield rose to 11.81%. This is expected to put additional pressure on gross external reserves; fallen to $35.5 billion. 

Their bearish activities were partly supported by a looping movement in the United States dollar against primary currencies. Nigeria’s Eurobonds had seen a buying momentum earlier in the week following seesaw movements in the United States dollar index.

Analysts noted that profit takers halted the run of the bulls. In its market brief, traders at TrustBanc Capital Limited said foreign portfolio investors (FPIs) later started to unload their US dollar assets– in a bid to optimise portfolio returns strategy.

In particular, selloffs on US dollar assets were seen mostly at the near end – Jul-23 (+109bps), while Jan-49 (+24bps) and Nov-47 (+14bps) saw sizeable offers throughout the week.

As a result, the average benchmark yield climbed by 14 basis points week on week to close at 12.48%.  Elsewhere, the 10-year US treasury yield depleted all week from 3.48% recorded last Friday to 3.3%. Specifically, the 10-year 6.38% JUL 12 2023, the 20-year 7.69% FEB 23 2038, and the 30-year 7.62% NOV 28 2047 lost $0.19, $0.66, and $0.69,

As a result, the instruments corresponding yields increased to 11.82% (from 10.73%), 12.90% (from 12.76%), and 12.57% (from 12.43%), respectively. Yields on Eurobond largely reflect investors’ expectations for what short-term interest rates set by the Federal Reserve will be over the life of a bond.

Market analysts view that those expectations have ratcheted down over the past month — first in response to stress in the US banking sector and then in reaction to the underwhelming economic reports.

Trade patterns seen recently suggest that the Eurobond market is overestimating the likelihood that the Fed will cut rates further this year. Last week at the Eurobond segment, the bulls sealed a perfect week, to close the month and quarter on a strong note.

Investors were confronted with mixed signals on the international front throughout the first quarter, from the rate hike puzzle to Bank failure in the United States and fears of a possible recession.

However, market sentiment turned positive in March, even after the Fed hiked the fund’s rate twice by 50 basis points. Accordingly, bids flocked across the benchmark curve, especially at the short spectrum. #Nigeria’s Eurobond Yields Climb on Fresh Selloffs

Naira Lost 11% as Banks Issue New Update on FX Spending

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