The yield on Nigeria’s Eurobonds has increased to 19.54% due to risk-off sentiment and declining inflation. Demand for local bonds remains high, although sell-offs are prevalent. U.S. investors are bracing for potential economic downturns as they reassess portfolios ahead of anticipated Federal Reserve communications regarding interest rates.
The average yield on Nigeria’s U.S. dollar-denominated Eurobonds increased by 12 basis points to reach 19.54% in the international market, influenced by a deceleration in headline inflation. Key macroeconomic indicators are showing improvement, and the naira has experienced some stabilization due to support from the monetary authority.
Demand for local bonds continues to rise in the context of elevated yields. Analysts anticipate a change in market dynamics leading to yield repricing as the Debt Management Office prepares for an auction in March. Despite this, a bearish sentiment prevailed in the Eurobond market, where risk-off attitudes resulted in sell pressure on African sovereign assets.
Selling activity was observed across various tenors of Nigerian Eurobonds as foreign portfolio investors reacted to a drop in headline inflation to 23.18%. This sustained selling pressure contributed to declining prices amidst widespread market uncertainty, with investors remaining cautious in search of clearer signals regarding global risk appetite.
Concerns regarding weaker-than-expected sales data have heightened worries about economic momentum, leading to increased demand for safe-haven assets. Consequently, the average mid-yield for Nigerian bonds rose, prompting traders to reduce their holdings in the sovereign Eurobonds across short, mid, and long-term maturities.
Notable sell-offs affected the Nov-27 and Mar-29 maturities, which experienced yield increases of 15 and 13 basis points, respectively. Analysts predict the negative sentiment may continue unless favorable developments arise on either the international or local fronts.
U.S. bond investors are preparing for potential economic downturns by reducing risky investments while many are extending durations in their fixed-income portfolios, anticipating that the Federal Reserve will not hastily resume interest rate cuts. Fed Chair Jerome Powell is expected to signal a cautious approach to rate cuts during an upcoming press briefing, emphasizing patience as the economy does not currently indicate a drastic decline.
Investors are closely watching the Federal Reserve policymakers’ quarterly economic projections, which will include interest rate forecasts and the “dot plot”, illustrating anticipated easing measures. The December dot plot suggested two rate cuts for the upcoming year, potentially leaving the federal funds rate at 3.9%.
In summary, Nigeria’s Eurobond yields have risen to 19.54%, influenced by various macroeconomic factors and investor sentiment. As foreign portfolio investors react to inflation data and economic indicators, a sell-off trend is evident across different tenors. Furthermore, U.S. bond investors are adjusting their portfolios in anticipation of the Federal Reserve’s cautious stance on interest rates, focusing on upcoming economic projections. Without positive developments, the negative sentiment in the Eurobond market may persist.
Original Source: dmarketforces.com
