Foreign Investors Dump Nigeria US Dollar Bonds

Foreign Investors Dump Nigeria US Dollar Bonds

Nigeria’s US dollar bond was faced with selloffs across tenors amidst uncertainties in the economy, reversing the previous trend observed in the international debt capital market.

Last week, foreign portfolio investors (FPIs) dropped low on buying momentum on the Nigerian government Eurobonds as sentiment turned cold; supported by macroeconomic uncertainties.

Traders noted that due to selloffs seen across various maturities, the average yield increased by 77 basis points. However, Federal Government US dollar-denominated bond prices plunged.

The majority of Nigeria’s US dollar bonds were trading above 11% yield, according to market data.  The Nigerian government has continued efforts to position Africa’s largest economy by the size of its gross domestic product (GDP) for prosperity.

President Bola Tinubu has signalled an intention to drive growth by removing bottlenecks with dual reforms that heightened economic pain but applauded by global rating agencies, investment banking firms and global index services providers.

But despite a decision to float the local currency using a willing buyer, willing seller approach, the naira has lost a great deal in 2023 with no respite in sight due to foreign currency shortage in the economy.

“Nigeria must strive to pump more oil to meet its OPEC+ quota, raising hydrocarbon sales is the best bet due to relatively overdependence on oil export which has a direct connection with economic growth…

“Foreign capital raise is a bad bet now, but then government can work around other external funding with lower debt service costs to support gross external reserves position, offset FX backlog and then provide market intervention, support for the naira”, Research analysts at LSintelligence Associates said in an email correspondence.

There were some buying activities in the local bond market. Last week, fixed interest securities traders at CardinalStone reported that the average yield rose marginally by a basis point to close higher.

Trading activities on FGN Bonds were predominantly bullish amidst a dearth of alternative investment windows. Yields on various maturities inched downward as prices of bond papers increased at a different pace depending on investment duration choices.

Notably, 10-year FGN bonds sunk by two basis points, 15-year FGN bonds sloped downward by three basis points and 20-year instruments saw a five basis point decline in yield, according to Cowry Asset market report.

Conversely, the 30-year instrument exhibited relative stability, with yields remaining flat from the prior week.  Overall, investor sentiment in the long-dated debt instruments was notably positive, resulting in closing yields of 13.23%, 14.93%, 15.36%, and 15.83% for the respective maturities.

Fixed income analysts spotted moderate buying interest at the mid-segment of the curve.  Especially on the July 2030 and April 2032 papers, while the short and long ends of the curve closed flat.

Across the benchmark curve last week, traders said the average yield was unchanged at the short and long ends but expanded at the mid-segment. #Foreign Investors Dump Nigeria US Dollar Bonds Naira Devaluation Deepens Economic Crisis in Nigeria