The Nigerian Eurobond yields trended lower, compressing by six basis points to 7.05 percent last week from 7.11 percent the previous week, as the market reacted to Trump’s speech on the US-NATO deal and the removal of the initially threatened tariffs.
“The week began on a bearish note, pressured by elevated and volatile U.S Treasury yields, a firmer U.S. Dollar, and cautious positioning amid uncertainty over the Fed’s easing path. Sentiments improved midweek as softer U.S. yields, firmer oil prices, and stabilising global financial conditions supported a rebound in risk appetite,” Omobola Adu, economist at CSL Stockbrokers.
When yields compress (go down), it means it is becoming cheaper for Nigeria to borrow money internationally, and in the secondary market, it means that the bond prices have increased.
Demand was especially strong for shorter-dated instruments, although supported by broad-based buying interest across the curve, including the 2028 bond (15bps) and 2029 bond (10bps), following several days of negative performance.
The Nigerian Eurobond market is recovering from the global sell-off seen on Tuesday due to geopolitical tension. Trump, in his speech at Davos on Wednesday, did not sound as hostile as his previous engagements. This prompted reaction toward the bullish side for the rest of the week.
The average yield of Nigeria’s Eurobond also dropped to 7.12 percent on Wednesday, from 7.26 percent on Tuesday, and 7.14 percent on Monday.
Read also: Nigeria’s Eurobonds recover from global sell-offs
“We expect this performance to filter into the coming week as more investors cherry-pick Nigerian sovereign instruments,” Matilda Adefalujo, fixed-income analyst at Meristem Securities, said.
The US, Europe, Japan, and other countries saw major sell-offs in their bond markets on Monday and Tuesday as Trump’s plan to impose levies on selected European nations as part of a bid to acquire Greenland has revived questions about the unpredictability of his policies and their desirability for global investors.
Many investors moved to safe havens like Gold, which hit a record high, exceeding $4,800 per ounce. While Nigeria’s yields dropped slightly, the fact that investors are still piling into Gold suggests the world is still on edge. For Nigeria, this means we aren’t out of the woods yet; any sudden shift in Trump’s trade policies could send those yields (and our borrowing costs) screaming back up.
What does the dip in yields mean for Nigeria?…
Nigeria must pay the interest on Eurobonds in US Dollars. This is the biggest pain point. For every dollar the government earns (mostly from oil), a massive chunk is immediately set aside to pay international creditors.
When yields drop, it indicates that Nigeria can issue new debt at a lower interest rate to pay off old, expensive debt (a process called refinancing). If the government can replace a bond paying nine percent interest with one paying 7 percent, it saves millions of dollars that would have otherwise drained out of the country.
Relieving pressure on the naira…
When Eurobond yields are high and investors are scared, they sell off Nigerian bonds, which puts pressure on our reserves and weakens the naira.
When yields compress because of improved risk appetite,” (as seen after the Davos speech), it means investors are buying into Nigeria. This inflow of dollars helps support the naira’s value, which can eventually lead to lower prices for imported goods like fuel and electronics.