Nigeria's US Dollar Bond Prices Slump Amidst FX Crisis

Nigeria’s US Dollar Bond Prices Slump Amidst FX Crisis

The average yield on Nigeria’s US dollar bond spiked amidst the foreign currency crisis in the local economy. There have been waves of selloffs on the country’s Eurobond due to weak appetite in the international debt market.

In the previous day, prices of US dollar bonds had surged but later foreign investors were seen dumping long-duration assets, a development that kept yield elevated across the curve.

The benchmark yield on Nigeria’s sovereign Eurobonds market saw a slight increase in the average yield, up by 10 basis points to 12.13% on Thursday.

A similar scenario played out in the local bond market amidst falling local currency. Investors’ portfolios in the bond market is highly exposed to inflation condition. The negative interest yield on naira asset has technically pushed foreign investors away from participating in the local debt capital market in 2023

In the money market, the liquidity level depressed again. This pushed funding rates to double digits.  Analysts at Cowry Asset said in an update that this increase occurred despite expectations of FAAC inflows.

Data from the FMDQ platform showed that key money market rates, such as the open repo rate (OPR) and the overnight lending rate (OVN), also rose significantly. Traders said in their respective market reports that the OPR increased to 11.83% from 3.50%, and the OVN reached 12.25%, up from 4.20%. 

The secondary market for FGN Bonds traded in the mix as the average yield inched slightly higher by 15 basis points to 14.61%.  The surge in the benchmark yield was attributed to 76 and 50 basis points surge seen in MAR-27 and MAR-50 papers after selloffs.

Foreign funds are still on the sideline in the financial market, analysts told MarketForces Africa, and this has resulted in a scarcity of US dollars in the economy. There has been minimal participation in the Nigerian Exchange, though the trend started reversing lately.

Foreign portfolio managers have been on the watch and mode following the devaluation of the naira, waiting for FX liquidity to improve at the official market.  The CBN has been unable to take concrete steps to clear out the FX backlogs.

“Once these conditions are met, we believe there will be a material increase in offshore participation”, CardinalStone said in an update. Naira Devaluation Deepens Economic Crisis in Nigeria