Foreign investors interest in Nigerian Eurobonds improves

With an expectation to keep returns optimsed, the Nigerian Eurobond gained foreign investors’ attention at the international market due to improved sentiment.

There have been portfolio adjustments across tenors following the divergence in monetary policy of the US Federal Reserve and Nigerian Central Bank.

Gross domestic product growth in the second quarter, declining inflation, and improved FX inflows have reflated investors’ sentiment on the sovereign Eurobond.

While the US slashed Fed fund rates by 50 basis points, the Apex Bank took its interest rate tightening higher at the same time, a pattern that was different from the previous trend.

Nigeria’s monetary policy decision has often mirrored the direction of the US Federal Reserve at any particular point in time – a defensive strategy to reduce capital flight.

In Nigeria’s sovereign Eurobonds market, buy pressure at the short, mid and long ends of the yield curve led to a 0.01% decrease in the average yield to 9.43%, according to Cowry Asset Limited.

The selling mood was driven by declining oil prices and some profit taking activities, said AIICO Capital Limited. Earlier, the market witnessed selling interests in Nigeria and Angola driven by lower oil prices and some profit takings.

Nigeria’s debt reached $108 billion, which represents an increase of +123% from 2012, a rate roughly 6x their GDP growth rate. Most of this new debt has been externally obtained leading to an increase in the risk of the burden of that debt becoming unsustainable.

In 2025, $2.5 billion equivalent are due, including $1 billion+ in US dollar, according to Datagrapple.

In 2027, another $1.5 billion will due. Global financial pressures have weakened the naira to 1,600 per US dollar, while it was barely above 400 two years ago.

“So, the cost of servicing USD debt in real terms has soared, and this is part of why the central bank is panic-hiking 50bp, causing a tightening that seems poised to be limited, as there is no reason to saber champagne, yet”.

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