Nigeria Eurobond yields are approaching their lowest levels in three years as investors flock to the West African nation’s debt, buoyed by sweeping economic reforms and a stronger policy signal from President Bola Tinubu’s administration.
The drop in yields reflects renewed investor confidence, driven by exchange rate liberalisation, subsidy removal and progress on tax reforms. The reforms have positioned Nigeria as a top reform story among frontier and emerging markets this year.
Hence, the average yield on Nigerian Eurobonds is on course to hit a three-year low as hard reforms get noticed.
The average yield on Nigerian Eurobonds declined by 22 basis points to 8.17 percent last week, from a high of 9.51 percent at the beginning of the year and even over 11 percent in April at the peak of trade tensions.
There’s growing optimism among market players that yields are on their way to seven percent levels this year. The last time yields were in the seven percent region was in April 2022, when it reached 7.87 percent.
“There is more demand and confidence in the country, and what is driving it are the CBN’s policies,” Efe Ogunnaiya, a Lagos-based portfolio manager. “It’ll be hard to bet against yields going as low as seven percent before the year runs out, given the current levels.”
The turnaround comes as global investors, who previously harboured doubts about the sustainability of President Tinubu’s reforms, are now showing increased confidence.
A key factor in the renewed optimism is the recent stabilisation of the naira. The currency is reaping the benefits of tough monetary and fiscal reforms of the last two years, contributing to a more predictable economic environment. This, coupled with a decline in inflation from a 28-year high, has bolstered faith in the government’s economic program.
Last week, the FGN dollar bond had a mixed run, beginning on a bullish note, supported by stronger-than-expected U.S. retail sales and a positive Michigan Consumer Sentiment Index.
However, the mid-week momentum softened as concerns grew over potential U.S. trade tariffs ahead of the August 1 deadline. Market sentiment was further dampened by news of legal challenges facing Federal Reserve Chair Jerome Powell.
Towards the end of the week, sentiment improved following a trade agreement between the U.S. and Japan, which renewed investor interest. Optimism was further bolstered by the prospect of upcoming U.S.–China trade talks.
Gbolahan Ologunro, a portfolio manager at FBNQuest, tapped the simmering global trade tensions, which has fuelled risk on sentiments across the SSA Eurobonds market.
“In addition, growing prospects of a potential rate cut from the US Fed have also amplified bullish sentiments,” Ologunro said.
He said the decline in yield is positive for investors as it connotes higher bond prices, which would lead to an improvement in the value of their portfolios.
At the beginning of the week, analysts at CSL Stockbrokers said they expected a bullish start “fuelled by renewed optimism following the recent trade agreement between the U.S. and the European Union.”
(BusinessDay)
