African Eurobonds Rally as Odds of U.S. Fed Rate Cut Increase

African Eurobonds Rally as Odds of U.S. Fed Rate Cut Increase

African Eurobonds gained foreign investors’ attention in the international market as odds of U.S Federal Reserve rate cut in December continue to increase.

Most of African issuers still offer premiums on external borrowings due to general economic uncertainties and social, political and economic risks.

Trading activities in Nigeria and other African issuers remained positive, supported by steady investor demand across long durations. Nigeria’s US dollar bonds topped offshore preference, with similar positive sentiment observed across peer sovereigns such as Egypt and Angola.

According to Cowry Asset Management Limited, the average yields on Nigerian Eurobonds fell by 11 basis points to close at 7.56%, reflecting investor confidence and optimistic sentiment in the offshore debt segment.

Nigerian Eurobonds maturing in Nov 2047 climbed to 91.519/92.162, from 90.593/91.140, according to TrustBanc Financial Group Limited.  The firm data showed that the sovereign notes that will expire in Jan-2049 surged to 105.212/105.764 from 104.255/104.846 the previous day.

“Barring any unfavourable development on the International or local front, positive sentiment is expected to persist in the near term,” the investment firm said.

Likewise, African Eurobond rallied, with increased demand for oil-linked issuers’ US dollar-priced borrowing notes. The sharp increase in demand was supported by intact expectations for a Federal Reserve rate cut, AIICO Capital told investors in a note.

The investment firm explained that offshore investors raised their bets on African issuers in expectation of a rebound in oil price amidst oversupply uncertainty and big tax-raising budget delivered by the UK prime minister to meet the deficit-reduction target.

Investor appetite remained strong across major African markets, including Nigeria, Angola, and Egypt. Notably, yields declined across Nigerian papers, leading the average benchmark yield to fall by 11 bps to 7.58%.

Analysts said they expect the Eurobonds market to sustain momentum in the near term as anticipation of a Federal Reserve rate cut in December remains strong. However, oil market volatility may drive a cautious sentiment. MTN Nigeria Sets to Pay Shareholders Interim Dividend