Foreign Investors Dump FGN Eurobond as Sentiment Drops

Foreign Investors Dump FGN Eurobond as Sentiment Drops

Selloffs hit the Federal Government of Nigeria (FGN) Eurobonds in the international capital market amidst uncertainties. It was noted that some foreign investors took cover last week in the Eurobond market as the release of the Central Bank audited financial statement triggered market reactions.

Cowry Asset Management Limited told investors in an update that the 10-year, 6.50% NOV 28, 2027, the 20-year, 7.69% FEB 23 2038, and the 30-year, 7.62% NOV 28 2047 bonds experienced losses.

The breakdown showed that 10-year FGN Eurobond lost US$10.51 to selloffs. This pushed its yield upward by 135 basis points to 10.56%. Also, the 20-year FGN Eurobond price declined by US$1.37, resulting in a 23 basis points jump in its associated yield which printed at 11.07% on Friday.

At the end of the curve, 30-year FGN Eurobond paper was priced down by US$1.39 due to selloffs, while yield surged 22 basis points to 11.09% last week in the foreign market.

Foreign investors in the Eurobond market continue to demand higher returns on investment funds despite a slowdown in U.S. inflation conditions. Last week, the U.S. consumer price inflation report showed that prices rose 0.2% month-on-month at both the headline and core (ex-food and energy) levels as was expected.

To two decimal places, it was even better at 0.17% and 0.16% respectively, which meant that the annual rate of headline inflation came in at 3.2% rather than 3.3% from 3% in June, ING analyst said in a note.  Core inflation slowed to 4.7% from 4.8% as expected.

Amidst uncertainties, FGN Eurobonds encountered declines across all tracked maturities, reflecting prevailing bearish sentiment, though the Debt Management Office (DMO) remains resolute about foreign capital amidst declining external reserves.

Data from the Central Bank showed that Nigeria’s gross external reserves remained under pressure due to lower accretion from the crude oil sales, most of which was swapped by the state oil corporation -NNPCL.

The import-dependent Africa’s largest economy saw its gross external reserves losing weight, dropping by US$44.41 million to US$33.88 billion, translating to six months of import cover, according to analysts.

“We expect currency pressures to remain intact in the near term, given current demand pressures and still frail FX supply despite the CBN’s abolishment of its multiple FX windows.

“On FX supply, we expect foreign investors to remain on the sideline in the near term as they continue to look for signals on market interest rates and solutions to the existing FX backlog and supply issues”, Cordros Capital Limited said in an update. #Foreign Investors Dump FGN Eurobond as Sentiment Drops Treasury Bills Yield Steadies, Money Market Rates Decline