Eurobond yields climb to 8.2% on sovereign risk

Nigeria’s dollar-denominated Eurobonds are trading at yields of up to 8.2 per cent, showing that the premium investors continue to demand to hold the country’s long-term sovereign debt despite an improvement in the prices of several outstanding bonds.

Data from the Debt Management Office, sourced from Bloomberg, showed that yields on Nigeria’s 15 outstanding Eurobond issues ranged between 5.625 per cent and 8.156 per cent at the close of trading on Monday, 31 August, 2026.

The highest yield was recorded on Nigeria’s 8.25 per cent $1.25bn Eurobond due in September 2051, which closed at a price of $100.983 and a yield of 8.156 per cent.

The 9.248 per cent $750m January 2049 bond followed with a yield of 8.076 per cent, while the 9.129 per cent $1.1bn January 2046 Eurobond yielded 8.058 per cent.

The high yields on the longer-dated securities highlight the higher return investors require to commit funds to Nigeria for extended periods. In bond markets, higher yields generally translate into higher perceived risk or a greater return requirement from investors.

By contrast, Nigeria’s shorter-dated Eurobonds were trading at significantly lower yields. The 6.5 per cent $1.5bn November 2027 bond yielded 5.625 per cent, while the 6.125 per cent $1.25bn September 2028 bond yielded 5.924 per cent.

The yield curve therefore shows a clear premium attached to Nigeria’s longer-term dollar obligations, with investors demanding additional compensation for the risks associated with holding the debt over 15 to 25 years.

The market data also show that several of Nigeria’s Eurobonds are trading at prices above their face value, suggesting stronger market pricing than would be implied by their original coupons alone.

For instance, the 10.375 per cent $1.5bn December 2034 Eurobond closed at $119.428, giving investors a yield of 7.211 per cent, below its 10.375 per cent coupon at issuance.

Similarly, the 9.625 per cent $700m June 2031 bond traded at $112.391 and yielded 6.553 per cent, compared with its original issue yield of 9.625 per cent.

This means investors buying these bonds in the secondary market at current prices would earn yields below the rates Nigeria offered when the securities were initially issued.

“Wen a bond trades above its face value, its effective yield falls below its coupon rate, while bonds trading below par generally offer higher effective yields,” said a Lagos-based fixed income analyst, Yetunde Oriji.

The current pricing provides a window into how international investors view Nigeria’s sovereign debt and the cost the country could face when returning to the international debt market.

At the upper end of the curve, yields above 8 per cent indicate that new long-term external borrowing could remain relatively expensive, particularly when compared with the lower yields on shorter-dated securities.

The data also show that Nigeria’s credit risk is being priced differently across maturities. While investors are willing to accept yields of around 5.6 per cent on the 2027 Eurobond, they demand more than 8 per cent on some securities maturing in the 2040s and 2050s.

For Nigeria, sustained high long-term yields could constrain the attractiveness of fresh Eurobond issuance and increase the cost of refinancing external obligations.

At the same time, the relatively strong prices of several existing securities show that investors are not uniformly selling Nigerian debt. Some bonds remain well above their $100 face value, reflecting demand for the securities and the relatively attractive coupons they offer at current market prices.

“Nigeria’s existing dollar debt remains attractive enough to trade above par in several cases, but investors continue to demand a sizable risk premium for taking on the country’s sovereign exposure over longer periods,” Oriji noted.(Punch)