Foreign Investors Demand for FGN Bonds Rise, Yield Dip

Foreign Investors Demand for FGN Bonds Rise, Yield Dip

As a result of a fresh rally, the Federal Government of Nigeria (FGN) Eurobonds prices surged in the international debt capital market due to increased demand by foreign investors. On July 12, the Nigerian government successfully settled its $500 million Eurobonds that matured, and the next maturities are far into the distant future. Nigeria’s debt agency has notified that FG has no intention to visit foreign markets for borrowings.

Market sentiments improved, driving investors’ interest amidst ongoing reform in the local economy. Growth expectation heightens across markets as the government begins to remove bottlenecks dragging economic growth over the years. For foreign investors, both subsidy removal and FX reform signal seriousness to get the wheel oiled.

As a result of buying momentum in the international debt market, the average secondary market yield was lower to 11.07%.  Despite JP Morgan’s lower FX Reserves estimate, foreign investors’ sentiment increased. JP Morgan said in an update that Nigeria’s net foreign exchange likely dropped to $3.7 billion in December 2022, an amount significantly lower than $37 billion reported in the apex bank audited report.

A number of investment banking firm estimates showed that the true position of Nigeria’s foreign reserves is not known, except for the figure put out by the CBN. The lack of consensus drove exchange rates higher amidst weakening FX market intervention by the apex bank after the naira devaluation in June 2023.

In 2022, the local currency lost about 11% despite a large amount of spending on rebate schemes by the CBN. On devaluation, the local currency has lost about 45% due to foreign currency shortage in Africa’s largest economy.

In the local market, the FGN bond secondary market closed on a bearish note, as the average yield expanded by 2bps to 14.1%. Across the benchmark curve, the average yield expanded at the short (+8bps) and long (+1bp) ends.

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Bond investors sold off the FEB-2028 (+41bps) and MAR-2050 (+7bps) bonds, respectively. Meanwhile, the average yield declined at the mid (-2bps) segment following demand for the APR-2029 (-6bps) bond.

Profit-taking across the short and long ends, particularly in the 23 FEB 2028 bond, led to a slight expansion in the average secondary market yield to 13.64% from 13.62%. N6.9bn Fraud: Emefiele Allegedly Opts for Plea Bargain

Notably, the 10-year borrowing cost yielded around 14.19% (from 14.22%), while the 30-year note saw a yield of 15.37% (from 15.30%), Cowry Asset Management told investors. Traders said The 20-year debt remained steady at 15.19%. #Foreign Investors Demand for FGN Bonds Rise, Yield Dip

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