Risk Betting: Foreign Investors Increase Nigeria Eurobond Buying

Risk Betting: Foreign Investors Increase Nigeria Eurobond Buying

Risk Betting: In the international debt market, foreign portfolio investors (FPIs) increased buying momentum on the Nigerian government Eurobonds despite budding macroeconomic uncertainties spooked by a number of pressure-induced growth-targeted policies.

Consequently, Federal Government US dollar denominated bonds recorded a surge in prices. At the same time, benchmark yield sloped downward as the authority continues efforts to position Africa’s largest economy by the size of its gross domestic product (GDP) for prosperity.

President Bola Tinubu has signalled an intention to drive growth by removing bottlenecks with dual reforms that heightened economic pain but applauded by global rating agencies, investment banking firms and global index services providers.

But despite a decision to float the local currency using a willing buyer, willing seller approach, the naira has lost a great deal in 2023 with no respite in sight due to foreign currency shortage in the economy.

“Nigeria must strive to pump more oil to meet its OPEC+ quota, raising hydrocarbon sales is the best bet due to relatively overdependence on oil export which has a direct connection with economic growth…

“Eurobond is a bad bet now, but then government can work around other external funding with lower debt service costs to support gross external reserves position, offset FX backlog and then provide market intervention, support for the naira”, Research analysts at LSintelligence Associates said in an email correspondence.

There were tepid trading activities in the local bond market despite a positive trend around the financial system liquidity.  Traders at CardinalStone reported that the average yield rose marginally by a basis point to close at 14.48%.

Fixed income analysts spotted sell pressures at the mid-segment (+2bps) of the curve.  Especially on the July 2030 (+3bps) and April 2032 (+8bps) papers, while the short and long ends of the curve closed flat.

Across the benchmark curve, Cordros Capital said the average yield was unchanged at the short and long ends but expanded at the mid-segment. In the money market, the Nigerian Interbank Offer rates crashed across most of the maturity gauges as the overnight NIBOR declined by 2.25% points to 9.63% as the liquidity level in the financial system eased.

Also, the key money market rates such as the open repo rate (OPR) and the overnight lending rate (OVN) lowered further to 7.61% (from 10.50%) and 8.33% (from 11.05%) respectively.   The financial system liquidity was supported by inflows from FGN bond coupon payments totalling N164.29 billion.

Analysts said the reduced pressures in the market would for a while, reduce local deposit money banks’ search for funding at the Central Bank of Nigeria’s standing lending facility. It was noted that trading activities on the Nigerian Treasury bills ended on a bullish note. Fixed income market analysts said the average yield declined by 4bps to 8.3%.

Across the curve, analysts at Cordros Capital reported that the average yield contracted at the mid (-13bps) and long (-1bp) segments. This came as fixed interest securities investors demanded the 168-day to maturity (-74bps) and 329-day to maturity (-1bp) bills, respectively. Conversely, the average yield closed flat at the short end.

Elsewhere, the average yield contracted by 1bp to 12.2% in the OMO segment.

Amidst expectation of yield repricing, the average secondary market yield on the Nigerian Treasury Bills was down across the short, mid and long end of the curve on the back of buy-interest.   In Nigeria’s Eurobonds market, the average secondary market yield closed negative, rising by 62bps. #Risk Betting: Foreign Investors Increase Nigeria Eurobond Buying Naira Devaluation Deepens Economic Crisis in Nigeria