Foreign investors bet on Nigeria Eurobonds after rates cut

African Eurobonds have been heated up with increased demand as some central bankers began to slide rates. Due to its elevated yield, which appears more competitive in the emerging market, some analysts predicted Nigeria will be a beneficiary of hot money in the fourth quarter as funds move to a safe haven.

On Wednesday, foreign portfolio investors (FPIs) go long on Nigeria sovereign Eurobond in the international capital market on accounts of an attractive yield currently above the US or Eurozone benchmark

The market saw buy pressure across the short, mid and long end of the yield curve led to a 0.07% decrease in the average yield to 9.54%, Cowry Asset Limited said in a note. Just last week, the average yield increased +14 basis points to close at about 9.6% amidst risk off sentiment triggered by disinflation.

The dust settled as investors continue portfolio rebalancing. Investors are also buying into hope of economic recovery in Nigeria with the ongoing reform – in spite of significant increase in total public debt.

The bullish momentum in the Nigerian Eurobond market signals a positive shift in sentiment, with Nigeria’s yields becoming increasingly attractive. The average yield has remained below 10% due to investors’ confidence even in the face of high probability of uncertainties in the local economy.

Last month, the Nigerian Eurobonds market experienced mixed performance on accounts of rates adjustment by the European Central Bank and US Federal Reserve and others.

Early on, market sentiment was bearish, with yields gradually rising to 9.81%, Meristem Securities Limited recall in an update. Analysts noted that after the U.S. Federal Reserve implemented a 50bps rate cut, investors grew more optimistic about Nigerian Eurobonds.

Buying interest on Nigeria’s sovereign US dollar bonds increase due to an enhanced appeal compared to yields in advanced economies.

This shift spurred a decline in yields, which dropped to 9.28% by the end of Sept, reflecting heightened demand for the instruments, Meristem Securities told investors in a note.

Analysts said investors also appeared more confident in Nigeria’s fiscal management, supported by two consecutive months of declining inflation and the additional 50 bps rate hike toward the month’s end.

Furthermore, the rate-cutting cycles in other emerging markets, such as South Africa and Ghana, following the U.S. decision likely fueled investor confidence in Nigerian Eurobonds. This surge in demand was evident through price increases across all Eurobond instruments in September.