Foreign Investors Scale Back on Nigeria US Dollar Bonds

Foreign portfolio investors (FPIs) in the international debt market scaled back on Nigeria’s sovereign US dollar bond holdings due to a changing buying mood. The risk-off sentiment resurfaces after the statistics office announced December inflation rate spiked.

Nigeria’s inflation conditions worsened to 28.92% as interest rate hikes failed to tame sustained increases in food items prices. High energy costs and weak income have affected consumer spending amidst fraud in government social spending. Likewise, the consumer inflation rate climbed in the United States.

Trading activities in the market were bearish across all ends of the yield curve, traders at Cowry Asset Limited said in a note. The selloffs saw prices of the Eurobond declining while yield expanded due to risk-off sentiments that underscore the sessions.

In Nigeria’s sovereign Eurobonds market, the prevailing sentiment was bearish across all ends of the yield curve, causing an increase of 0.21% in the average yield to 10.14%. Foreign investors are returning to the local economy, albeit, slowly as they continue to gauge economic temperature.

MarketForces Africa reported that in the Eurobond market on Friday, the average yield declined by -60 basis points to close at 9.9%. At the OMO auction, the central bank offered investors higher rates to attract foreign interest. This triggered an increase in forex inflows recorded in the market last week.

Traders noted that the latest selling rallies came after the US Bureau of Labor Statistics reported that inflation rose to 3.4% year-on-year in December 2023 compared with 3.1% year-on-year recorded in November.

The surge was driven by food prices which increased by 2.7% year on year versus 2.9, while shelter rose by 6.2%.  However, inflation moderated in Energy by -2.0% year on year vs -5.4%, and gasoline dipped 1.9% amidst uncertainties in the global oil market.  

The 10-year US Treasury yield rose 0.039 percentage points to 4.103% as the price fell. Yield is up for two consecutive trading days, according to traders’ notes. Naira Steadies as Banks Issue Update on FX Purchase

Gilt yields continue to rise after Wednesday’s stronger-than-expected U.K. inflation data lowered expectations of early rate cuts from the Bank of England. Markets are pricing in fewer rate cuts from the BOE than from the U.S. Federal Reserve and the European Central Bank in 2024, causing gilts to underperform their U.S. and Eurozone peers, XTB research director Kathleen Brooks, says in a note.