Nigeria US Dollar Bond Yield Climbs as FPIs Dump Assets
Amidst macroeconomic inconveniences, Nigeria’s sovereign bond benchmark yield shot up by 27 basis points as foreign investors in the international market adjusted their appetite as Africa’s largest economy struggles to rise.
According to a market update from Cowry Asset Limited, trading activity was dominantly in the bearish region as negative sentiments pervaded the movement in yields. Foreign portfolio investors (FPIs) engaged in some tough selloffs which pushed US dollar bonds price down.
As a result, the average yield in the market inched higher by 27 basis points to close at 11.49% due to a strong, albeit sustained risk-off sentiment in the Eurobond market. Juicy rates and the yield on Nigeria’s sovereign US dollar bonds attracted foreign portfolio investors’ interest. However, uncertainties have reduced market appetite, resulting in portfolio adjustments to capture the latest market dynamics.
US Federal Reserve chair Jerome Powell in a speech maintained the status quo on fed fund rates but hinted that monetary tightening is far from being over even while the inflation rate has moderated. Powell’s hawkish tone triggered a market reaction that caused the US Treasury bills yield curve to shift across tenors. Analysts however predict that trading activities in the Eurobond will improve ahead of inflation data for October 2023.
The benchmark 10-year Treasury yield climbed to 5% on Friday, its highest level since the financial crisis in 2007, before slipping slightly.
However, yields have shot up once more Monday, with the 10-yield reaching 5.025%, as investors have become very wary about the potential for rates staying high for longer, particularly after Fed Chair Jerome Powell mentioned the possibility of more monetary tightening in a speech last week.
By consensus, Broadstreet analysts have projected consumer inflation to continue to accelerate throughout 2023 as monetary policy tightened failed to reverse the trend. President Bola Tinubu’s efforts to oil the wheel of an economy that has been in a coma for 8 straight years have brought pain and discomfort to citizens.
Despite the fact that oil price is higher than the budget benchmark, Nigeria has continued to face a US dollar shortage, a development that forced the monetary authority to devalue the local currency in June 2023.
Nigeria’s oil-dependent economy has failed to boost external reserves with export revenue due to a number of oil swap agreements. After all, Brent crude prices, at around $85pb, remain very high. And Bonny Light – Nigeria’s main grade of crude oil – is trading even higher, at about $100pb.
In a bid to bolster liquidity in the Nigerian forex market, NNPC Limited secured an oil forward contract loan of US$3 billion from African import-export bank (AfreximBank). At the moment, the deal has hooked, though AfreximBank is searching brim light for the deal to scale.
The government also secured a $1.5 billion loan in the pipeline, and there is another $10 billion coming up from undisclosed sources. In the local bond market, trading activities on government paper also ended on a bearish note, as the average yield advanced by 6bps to 15.7%.
Across the benchmark curve, traders at Cordros Capital Limited said the average yield declined at the short (-7bps) end as investors demanded the MAR-2024 (-202bps) bond. Fixed interest securities traders said yield expanded at the mid (+1bp) and long (+15bps) segments following selloffs on the APR-2032 (+5bps) and MAR-2036 (+36bps) bonds, respectively. AfCFTA Can Break Africa’s Legacy of Exporting Raw Materials, Importing Finished Goods