Nigeria’s Eurobonds Bearish on U.S. Elevated Yield Sensitivity
Nigeria’s sovereign Eurobonds faced selling pressure in the international market as foreign portfolio investors continue to pile into US Treasuries amid elevated yields.
Transactions opened on a cautious note on Monday, as investors remained sensitive to elevated U.S. Treasury yields and ongoing geopolitical risks. According to a market report, the average yield on Nigeria’s U.S. dollar-denominated bonds edged up by 1 bp to 6.89%.
This dip underscored a cautious sentiment among foreign investors and subdued international demand for Nigeria’s dollar-denominated sovereign paper, according to Cowry Asset Limited.
Nigeria continues to record improvements in macroeconomic indicators, with an average gross domestic product growth rate of 4% and moderating headline inflation.
Fiscal performance has been bolstered by a sharp increase in hydrocarbon revenue, supported by elevated oil prices in global commodity markets and rising crude oil production.
These have lifted the country’s external reserves above $52 billion, with net FX position standing above $40 billion, according to the latest disclosure by the Central Bank.
While foreign portfolio investors have flocked to the local debt capital market, chasing elevated yields on the country’s naira-denominated assets, Eurobonds have fluctuated in line with external market dynamics.
Foreign investors have become sensitive to African Eurobonds, with sell pressure on oil-linked issuers like Angola, and Ghana and Egypt were sold off amid sustained portfolio rebalancing.
The U.S. 10-year Treasury yield held around 4.7%, while the 30-year climbed to about 5.29%, keeping pressure on long-duration assets, investment AIICO Capital Limited told investors in an update.
Stalled U.S.-Iran diplomatic talks supported a modest rise in oil prices, adding to inflation concerns and limiting the broader appetite for emerging-market debt.
The investment firm noted that Nigeria’s July inflation print offered some support for the sovereign curve, with headline inflation easing to 15.43% year-on-year from 15.91% in June, reinforcing the improving domestic macroeconomic outlook.
Consequently, selective buying interest was offset by sell-offs across other maturities, with the average benchmark yield inching up by 1bp on Monday.
“We expect Nigerian Eurobonds to remain cautiously supported, with market direction continuing to depend largely on U.S. Treasury yield movements, expectations around the Federal Reserve’s monetary policy path, and broader emerging-market risk sentiment”, AIICO said.
Nigeria’s Headline Inflation Rate for July Estimated to Ease
