Foreign investors offload Nigeria Eurobond amidst subpar credit rating

Market bearish action followed declining key macroeconomic indicators, weak local currency and sustained rise in public debt stock.

While foreign portfolio investors’ confidence has been boosted by the ongoing reform that raise return on hot money, portfolio rebalancing has persisted since yield inverted due to diverge spot rates price action between the Debt Management Office and the Central Bank of Nigeria

MarketForces Africa reported that investors risk-off sentiments recently pushed Nigeria’s US dollar bonds benchmark yield above 10%, reversing previous trend that kept return behind the line.

Moody’s rating affirmed Nigeria’s credit rating at Caat1, suggesting sovereign poor credit standing in the face of macroeconomic crosswinds.

The rating agency said affirmation of the Caa1 ratings reflects elevated risks regarding high and still-rising inflation and the particularly uncertain fiscal outlook.

It explained that Nigeria’s local currency ceiling at B2 remains two notches above the sovereign issuer rating, incorporating some degree of unpredictability of government actions, political risk and the reliance on a single revenue source.

In the global debt market, the sovereign Eurobonds was predominantly bearish across maturities, thus pushing the average yield higher by three basis points to 10.27%, according to Cowry Asset Management Limited.

The yield on the US 10-year Treasury note pared its early decline to hover above the 4.25% mark on Friday, extending its rebound from the over-two-month-low of 4.21% touched on June 18th after strong economic data limited the need for the Fed to deliver a rate cut in the third quarter.

The 30-year US treasury yield rose 0.047 percentage point to 4.397%. The 2-year yield rose 0.045 percentage point to 4.728%.

The yield on the Canadian 10-year government bond rebounded to over 3.37% from a four-month low of 3.28% observed on June 14th, following higher US Treasury yields amid signs of a strong US economy, while Canadian data showed mixed results.

Bond yields were on track for a slight weekly rise, as hopes that France’s far right National Rally party will backtrack on fiscally expensive pledges stopped last week’s rush into safe-haven assets.

German 10-year bond yields, the benchmark for the euro area, fell 4.5 basis points to 2.38% and were set to end the week 2 bps higher.

The gap between French and German 10-year yields- a gauge of risk premium investors demand to hold French government bonds – was at 72 bps, after hitting 82.34 bps last Friday, its highest level since February 2017.

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