FPIs Exit Short-Dated Holdings in FGN Eurobond
Benchmark interest rate hikes in the United States and Europe have triggered an increase in selloffs on the Federal Government of Nigeria (FGN) Eurobond in the international debt capital market.
US Federal Reserve announced 25 basis points increase in fund rates to 5% -5.23% this week with a similar development from the European Central Bank (ECB) amidst inflation-fighting policy tightening.
Reacting to the development, foreign portfolio investors (FPIs) exited their short-dated holdings, thus pushing the Eurobond yield curve upward. In July, Nigeria will settle a $500 million Eurobond repayment and analysts hope to see the transactions clearing despite the FX crisis in the local economy.
In the Nigerian Exchange, a regulator report indicated that foreign investors’ activities at the local bourse were reduced by more than half. The reduced activities were driven by multiple pressures including the inability to upstream US dollar abroad due to the Central Bank of Nigeria’s capital control approach to managing FX crisis.
Elsewhere, the FGN Bond market finished on a mixed note, as offers at the far end of the curve submerged bids at the short spectrum. Traders saw prices closing slightly higher on Thursday following a fresh rally on local debt papers.
Consequent to increased demand for bonds by asset, fund managers, the average yield on the secondary market contracted to 14.12%. In its market note, traders at Cowry Asset Management Limited said the 30-year debt was 152 basis points cheaper, yielding 15.70% from 15.46%.
The 10-year, 15-year, and 20-year FGN bonds yields remained stable at 12.85%, 14.75%, and 15.23%, respectively, traders said TrustBanc Capital said the offers were most pronounced on Apr-49 and Mar-50 maturities, lifting yields by 22 basis points and 24 basis points, respectively.
Similarly, the Eurobond market traded on a mixed note, albeit with a bearish tilt. FPIs exited their short-dated holdings, although moderate bids were visible across the curve.
Whilst Jul-23 maturity jumped by 57 basis points, Nov-25 and Nov-28 papers shed 5 basis points each. Then, the benchmark yield climbed by 5bps to close at 12.98%. The 10-year US Treasury yield slid 6 basis points lower to 3.44%. #FPIs Exit Short-Dated Holdings in FGN Eurobond