Falling Eurobond yields open window for Nigeria to rework costly debt

Nigeria is looking to take advantage of falling Eurobond yields and stronger investor sentiment to refinance high-cost debt and raise fresh funding, as elevated oil prices and ongoing reforms improve external market conditions.

Finance officials say the government plans to refinance expensive legacy obligations while accessing new borrowing to help plug a N30 trillion budget deficit this year, reflecting continued pressure on public finances despite recent gains in non-oil revenue.

“We think that this timing is good for us to be able to maybe even refinance some of our expensive past debts, but also to raise more funding for our development at this critical time,” said Taiwo Oyedele, Minister of Finance, in an interview. “You don’t know what will happen tomorrow. But as of today, market conditions are actually very good.”

The country is also keeping its financing options open, including concessional loans from multilateral institutions, as conversations continue with the World Bank and other development partners. According to Oyedele, investor appetite has improved significantly, supported by reforms undertaken since the current administration came into office in 2023.

Nigeria’s fiscal gap remains elevated despite gains from recent tax reforms, with the government still seeking ways to bridge a funding shortfall estimated at N30 trillion for the year.

Investor sentiment in the Eurobond market has, however, strengthened in recent weeks, supported by rising crude oil prices and improved global risk appetite. Brent crude has gained sharply this year amid geopolitical tensions, including the US–Iran conflict, creating a tailwind for oil exporters such as Nigeria.

The oil rally has improved Nigeria’s external earnings outlook and strengthened perceptions of creditworthiness, contributing to a decline in the risk premium demanded by investors on Nigerian Eurobonds. The spread over US Treasuries has eased by about 80 basis points since the start of recent geopolitical tensions, falling to levels not seen in over a decade.

Market indicators show that Nigeria’s sovereign Eurobond yields have declined to around 6.8 percent, marking a year-to-date low and reflecting sustained offshore demand across the curve. Investors have continued to accumulate Nigerian paper, driving prices higher and compressing yields across maturities.

Analysts say the rally is being supported by a combination of higher oil revenues, easing geopolitical tensions in parts of the Middle East, and a broader risk-on shift in global fixed income markets. Improved external conditions have also reinforced expectations of stronger foreign exchange inflows and near-term fiscal stability.

“For the Eurobond space, it’s majorly tied to the fact that the U.S. and Iran were making progress towards a potential peace agreement. So we see some risk-on sentiment from investors,” said Titlayo Daramola, a fixed income analyst.

While elevated oil prices have provided relief on the external side, they have also contributed to global inflationary pressures, complicating monetary policy conditions. This has forced the central bank to maintain a tighter stance and pause any near-term easing cycle.

The government now faces the dual challenge of financing a large fiscal deficit while managing inflationary pressures and maintaining investor confidence. Analysts note that although current market conditions present an opportunity to refinance costly debt, the window remains highly sensitive to global oil volatility and shifts in risk sentiment.

Still, the sustained compression in Eurobond yields offers Nigeria room to reassess its external debt profile and potentially smooth refinancing operations at more favourable pricing levels than earlier in the year.