Foreign Investors Dump Nigeria, Ghana, Angola Eurobonds
Foreign portfolio investors (FPIs) dumped African issuer notes across tenors in a portfolio rebalancing effort as key adjustment in market fundamentals.
The U.S. Federal Reserve rate cut and then improved employment in America fueled the sell sentiment, which affected the oil-rich African issuers’ yield curve.
Offshore investors significantly loaded their book due to higher return offerings from African names before the emergence of heated externalities that raised borrowing costs.
African sovereign names had earlier witnessed foreign asset managers circling on relative short-dated note in Ghana, Angola, and Nigeria in particular. Similar, Egypt sovereign has also attracted attention until trend started to reverse.
On Thursday, African Eurobond market closed bearish after U.S. jobless claims declined by 14k to 218k, AIICO Capital Limited told investors in a note.
The investment hints that the stronger labor market print fuelled a mild risk-off sentiment, driving sell-offs and a modest rise in yields across maturities.
Nigeria, Eurobond yields rose 10bp to 7.86%, reflecting diminished investor confidence as market players assess how major central bank rate cuts, especially by the US Federal Reserve, will impact their portfolios.
Fixed income market analysts expect sentiment to align with the macroeconomic data and oil price movement. Oil prices edged higher from the previous session’s seven week high, as investors speculated despite a weaker close in U.S. equities, while weighing expectations of slower winter demand and the return of Kurdish supplies.
Brent crude gained $1.13, or 1.65%, to $69.59 a barrel, while U.S. WTI improved by $0.19, or 0.29%, to $65.18. Gold prices rose after U.S. weekly jobless claims unexpectedly declined, while investors awaited key inflation data that could shape the Federal Reserve’s next interest rate moves.
Spot gold gained 0.27% to $3,753.36/oz, while U.S. gold futures spiked by 0.27% to $3,784.50/oz. Analysts said Oil prices are likely to trade range-bound with a slight bearish bias tomorrow, as strong U.S. data offsets supply support from Russia’s export curbs. World Bank Lauds Nigeria’s ACReSAL Project as Huge Success
Offshore investors’ interest in African Eurobonds is often supported by higher yields when compared with U.S. Treasury yields. African countries are considered higher-risk investments, requiring higher interest rates to compensate investors for risks like currency volatility and political instability.
Fixed income market analysts said while U.S. yields are influenced by the Federal Reserve’s policy, African yields are affected by a combination of global factors and country-specific issues, such as economic conditions, debt sustainability, and sovereign credit ratings.
Across African issuer, Nigeria is noted to have the lowest default risk due to the nation’s incredible growth capabilities, and track records in the external markets.
