Nigerian Eurobond Market Experiences February Rally Amid Foreign Confidence

Nigeria’s Eurobond market closed February positively, with yields dropping to 8.80%, indicating strong foreign investor demand. The Sub-Saharan African average yield fell to 8.4%, with Nigeria outperforming the region. Analysts cited macroeconomic improvements and global market trends as key factors, projecting a bullish outlook driven by liquidity inflows.

In February, Nigeria’s Eurobond market experienced robust performance, signifying ongoing confidence among foreign investors. The Debt Management Office (DMO) reported that the average yield on Nigeria’s Eurobonds decreased to 8.80 percent, down 41 basis points from 9.21 percent at February’s onset, indicating a strong demand from investors.

The Sub-Saharan African Eurobond market mirrored this trend, with yields decreasing by 27 basis points to an average of 8.4 percent, positioning Nigeria favorably ahead of its regional counterparts. Analysts from Afrinvest attributed the positive movement to the region’s improved macroeconomic conditions and a shift toward lower interest rates.

Kenyan bonds demonstrated particularly notable gains, with yields dropping by 49 basis points after the announcement of a centralized bond reporting system, further enhancing the allure of Nigerian Eurobonds. Despite facing some sell-offs last week, the yield modestly increased from 8.79 percent to 8.80 percent.

Analysts at CSL attributed the decline in yields to global risk-off sentiments, geopolitical tensions, and significant economic data releases. In the United States, fourth-quarter GDP growth matched expectations at 2.3 percent; conversely, an unexpected rise in jobless claims to 242,000 raised concerns regarding labor market stability.

Interestingly, while Nigeria’s Eurobond market rallied, Ivory Coast experienced increased bond yields across all tenors due to substantial sell-offs. In contrast, Kenya and South Africa maintained a bullish trajectory, with the yield on Kenya’s 2028 bond reducing by 0.44 percent, as did its 2048 bond by 0.06 percent, signaling sustained investor interest. Notable yield declines were also observed in Benin Republic’s 2038 Eurobond and South Africa’s 2041 Eurobond.

Looking to the future, Afrinvest analysts predict a favorable market outlook, underpinned by significant liquidity inflows from coupon payments of N642.6 billion and maturities amounting to N562.5 billion. Furthermore, a dovish interest rate outlook is expected to support a bullish sentiment, while the ongoing search for yield is likely to sustain offshore interest in the Sub-Saharan African region.

The February rally of Nigerian Eurobonds reflects significant foreign investor confidence, evidenced by a drop in yields and improved macroeconomic dynamics. As regional market dynamics favor investment, sustained liquidity inflows present an optimistic outlook. Thus, the ongoing search for yield is anticipated to maintain interest in Nigeria’s Eurobond market, positioning it favorably in the Sub-Saharan African context.

Original Source: businessday.ng