FGN Bond Yield Skids after Sovereign Debt Upgrade
Patience Oniha, DG, DMO

FGN Bond Yield Skids after Sovereign Debt Upgrade

In the local debt capital market, the average yield of the Federal Government of Nigerian (FGN) Bond dropped by 12 basis points, according to traders’ notes, a day after the nation’s sovereign debt rating was upgraded.

Meanwhile, the value of the Eurobond rises due to higher positioning following Oxford Economics’ overweight rating of Nigeria’s sovereign debt due to the easing of global funding conditions and high crude oil prices.

MarketForces Africa reported that Oxford Economics upgraded Nigeria’s sovereign bond to overweight during the week from its neutral position previously held. 

Supply disruptions related to the Ukraine war have led to a sharp rise in international food and energy prices in 2022, increasing global inflation expectations and triggering monetary tightening by central banks in both developed markets (DMs) and EMs.

This has put upward pressure on bond yields across EMs, including the Sub-Saharan Africa (SSA) economic bloc, thus curtailing access to international capital markets. Nigeria has been on a borrowing spree, ramping up more debt from the local market as Eurobond call become expensive.

However, market analysts are projecting a possible near end to a glooming outlook, though uncertainties remain in the corner with a higher level of insecurities – thus raising borrowing risks.

In light of currently observed market accessibility issues, MSCI said it will not implement changes as part of this Index Review for any securities classified in Kenya, Nigeria, or Sri Lanka for the MSCI Kenya, MSCI Nigeria, and MSCI Sri Lanka Indexes or impacted composite indexes.

In the secondary market, fixed income analysts told MarketForces Africa that demand pressures on local bonds dragged average yields on government instruments downward. 

In its market note, fixed income traders at Cowry Asset Management said the values of plain vanilla FGN bonds were relatively flat for most debt instruments. Cordros Capital said in its market report that across the benchmark curve, the average yield declined at the short (-42bps) end by 42 basis points.

Due to the bullish momentum, the average secondary market yield contracted by 12 basis points to 14.44% as investors speculated along the front end of the curve. In the short end of the curve, Apr 2023 FGN Bond yields decline by 218 basis points due to demand pressures from local bond traders.

At the mid-end segment, the 23 Mar 2025 FGN bond yield dropped by 21 basis points while the 22 Jan 2026 FGN Bond lowered by 31 basis points on Thursday. READ: MSCI to Downgrade Nigeria Indexes over Difficult FX Repatriation

Meanwhile, the value of the FGN Eurobond increased further for all maturities tracked on sustained bullish sentiment. Hence, the average yield contracted by 37 basis points to 12.24%, according to Cowry Asset.

Oxford Economics said that continued high oil prices and an easing of global funding conditions were supportive for Nigerian assets and as a consequence it upgraded Nigerian sovereign bonds in US dollars (USD) to overweight from neutral.

In the first half of the year, JPMorgan removed Nigeria from its list of emerging market sovereign recommendations that investors should be ‘overweight’ in, saying the country had not taken advantage of high oil prices while adding Serbia and Uzbekistan.

Emerging market sovereign debt is at the “mercy” of the Federal Reserve’s interest rate decisions, JPMorgan analysts said in a note, as the U.S. central bank’s rate raises drain capital from developing markets. #FGN Bond Yield Skids after Sovereign Debt Upgrade

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