The average yield on Nigeria’s US dollar bonds has climbed to 19.54% following a slowdown in inflation. Investor sentiment remains negative amid sell-offs in Eurobonds driven by risk-off behaviors. Weak sales data has raised concerns about economic momentum, influencing future interest rate discussions by the Federal Reserve. Analysts expect the yield to remain under pressure unless significant developments occur.
The average yield on Nigeria’s US dollar bonds has increased by 12 basis points, reaching 19.54% in the international market. This rise follows a slowdown in headline inflation, indicating improved macroeconomic conditions, while the naira has experienced some stabilization due to monetary authority support. The demand for local bonds continues to rise as yields remain elevated, though market dynamics may shift as the debt office prepares for its March auction.
Persistent bearish sentiment characterized trading in the Eurobond market, with risk-off behavior leading to increased sell pressure on various African sovereign assets. In Nigeria, foreign portfolio investors reacted to a decline in headline inflation, which has fallen to 23.18%, resulting in significant sell-offs across Eurobond tenors. This persistent selling trend has lowered bond prices amidst broader market uncertainty, with many participants adopting a cautious stance, awaiting clearer global risk indicators.
Weak sales data has compounded concerns regarding economic momentum, influencing speculation about the Federal Reserve’s impending interest rate decisions and augmenting the appeal for safer assets. By day’s end, the average mid-yield for Nigerian bonds rose as traders decreased their holdings in Nigeria’s sovereign Eurobonds, affecting short-, mid-, and long-term maturities.
A noticeable sell-off occurred on Nov-27 and Mar-29 maturities, leading to an increase in yields for these Eurobonds by 15 basis points and 13 basis points, respectively. Analysts anticipate that negative sentiment is likely to continue unless favorable developments arise, either locally or internationally.
US bond investors are increasingly concerned about an economic downturn, opting to reduce their exposure to riskier assets while extending the duration of their fixed-income portfolios. The Federal Reserve, under the leadership of Chair Jerome Powell, is expected to communicate a patient approach to interest rate cuts, suggesting that the economy is not in immediate jeopardy. Best estimates indicate the Fed may maintain its stance until further clarity emerges regarding broader economic policies.
Investors are keenly observing the quarterly economic projections from Fed policymakers, which will include interest rate forecasts and insights into the anticipated economic easing reflected in the ‘dot plot.’ The December projections indicated potential for two interest rate cuts this year, suggesting a fed funds rate of approximately 3.9%.
In summary, the yield on Nigeria’s US dollar bonds has risen to 19.54%, driven by bearish sentiments in the Eurobond market in response to declining inflation rates. Market participants are cautious due to uncertainties regarding economic conditions, both domestically and internationally. Meanwhile, US bond investors are preparing for potential economic shifts, awaiting further clarity on the Federal Reserve’s interest rate strategy and subsequent economic projections.
Original Source: dmarketforces.com
