Foreigners Increase Bet on Nigeria US Dollar Bonds
There was a serious shift away from selling to buying momentum across Nigeria’s US dollar bond in the international debt market following Q3-2023 growth record in Africa’s largest economy.
Foreign portfolio investors ramp up Nigeria’s Eurobond instrument as authority seek approval for additional external loans to support government spending plans.
Nigeria’s sovereign Eurobonds market saw buy sentiment across the short, mid, and long ends of the yield curve, according to Cowry Asset Limited.
The bull in the market resulted in a decline in the average yield by 20 basis points to 10.68% as foreigners continued to price local risks higher due to uncertainties.
In comparison, US Treasury yields also dropped further on Wednesday as traders increased bets that the Federal Reserve is likely to start cutting interest rates next year.
Elsewhere, data showed that the US dollar index has come under pressure against a basket of major currencies, setting new buying momentum for US Treasury bonds.
After staying low on sugar, the dollar has found some support despite bullish sentiment on US bonds with Treasury yields breaking through key levels.
In U.S. economic updates on Wednesday, revised data showed the economy grew at a 5.2% annual pace in the third quarter – faster than previously reported – although the strong gain appeared to be a one-off.
The 30-year US Treasury yield declined 0.072 percentage points to 4.450%, with increased bond prices in the market. Yield is down for three consecutive trading days.
The UK’s 10-year Gilt yield continued to decline towards 4.1%, approaching its lowest level in six months, as expectations grew that global interest rates have peaked and are likely to decrease next year.
The UK Treasury recently announced a reduction in its bond sales target for the 2023-24 fiscal year, although the reduction was smaller than initially anticipated.
Bond Investors Refocus Attention on Short-Duration
In the local market, the average yield on Federal Government of Nigeria (FGN) bonds remained tight as investors shifted their attention to short-duration bonds. Naira Devaluation Deepens Economic Crisis in Nigeria
While seeking a healthier return that protects their portfolios against the inflation rate’s negative impacts, investors are cherry-picking returns across bond lines.
The renewed interest in short duration comes amidst uncertainties in the economy. Some fund managers told MarketForces Africa that yield would likely surge on the possibility that the government borrowing plan for 2024 would provide a new catalyst to reprice rates.
In the FGN bond market, trading activity was mildly bullish, thus leading to a decline in the average yield by a base point to close at 15.72%. This resulted from buy sentiment evident in the MAR-24 and JAN-26 FGN papers.
