Demand to Increase as FGN Eurobond Yields Track Higher

Demand to Increase as FGN Eurobond Yields Track Higher

The Federal Government of Nigeria (FGN) Eurobond yields traded at an attractive level, and demand for the instruments across various tenored is expected to increase in the new week, according to assets managers.

Yields on long durations settled higher in the double-digit region. However, the strong yield is projected to drive demand for the Eurobond instrument in the foreign debt capital market in the new week. 

An increase in demand for FGN Eurobond would as expected this week, according to Cowry Asset Management projection, but this will drag the yield back to the origin as prices are expected to adjust upward.

Investing in naira denominated assets has been unimpressive as the local currency continues to fall. The investing option is worsened by the rising headline inflation rate as Naira remains relatively overpriced amidst dollar scarcity. Even with a 150 basis point interest rate hike, fixed income market return remains exposed to a higher inflation rate.

The ongoing yield repricing has narrowed negative real return in the Nigerian debt capital market, according to traders. In the domestic market, bond traders and investors were mostly bullish in the secondary market as the value of FGN local bonds traded went in a mixed direction for the maturities tracked.

The 10-year, 16.29% FGN MAR 2027 instrument and 20- year 16.25% FGN APR 2037 debt rose by N0.53 to N120.47 from N119.94 and N0.66 to N122.97 from N122.31, Cowry Asset Management said in a note.

It was noted that these FGN Bonds instruments saw their yields decrease to 10.70% (from 10.84%) and 12.76% (from 12.85%) respectively – as prices inched upward due to selloffs of existing positions.

On the other hand, the 15-year 12.50% FGN MAR 2035 instrument declined by N0.62 to N99.33 from N99.95 while its yield rose to 12.60% from 12.50%. However, the 30-year 12.98% FGN MAR 2050 bond remains flattish at N99.30 and the corresponding yields cleared at 13.07%.

In the international debt capital market, the value of FGN Eurobonds traded depreciated for all the maturities tracked on renewed bearish sentiment. The United States dollar traded strongly in the week amidst the expectation that Federal Reserve would hike the benchmark interest rate by 50 basis points in June.

In its report, Cowry Asset Management said the 10-year, 6.375% JUL 12, 2023 bond, the 20-year, 7.69% FEB 23, 2038 paper and the 30-year, 7.62% NOV 28, 2047 debt lost USD 0.23, USD 2.02 and USD 1.58 respectively.

The Eurobond instrument’s corresponding yields rose to 7.40% from 7.16% at the previous close, 11.33% from 10.99% and 11.04% from 10.80% respectively, according to analysts’ notes. READ: FGN Eurobond Yield Falls Four Basis Points to 7.54%

“We expect the value of FGN Bonds, especially for longer maturities to fall (and yields to rise) as investors demand higher returns given the recent rate hike on 364-day Bill.

“Nevertheless, we expect investors to demand Nigerian Eurobonds as yields trade at attractive levels”, Cowry Asset stated. Demand to Rise as FGN Eurobond Yields Track Higher