Juicy yield draws massive investor interest to Nigeria’s long-bond as demand jumps

A reopening of Nigeria’s longest-dated bond was oversubscribed by more than three times at an auction on Monday as investors swooped on the issue’s record yield.

The 2053-dated debt attracted total subscriptions of 330 billion naira ($364 million), compared with the 90 billion naira of paper put on offer by the nation’s Debt Management Office.
According to Bloomberg, other shorter tenor notes, including the 2029, 2033 and 2038 maturities, were all undersubscribed at the same auction, indicating a preference for the longer-dated debt, which was also offered at a record yield of 18%.
The demand for the 30-year paper showed investors betting it will deliver a handsome return over inflation in the long run, Wale Okunrinboye, chief investment officer at Access Pensions Ltd., said by email.

“Pension funds exist to meet long-term liabilities, so if you have a long-term asset yielding 18% which is 500-600 basis points over long-term inflation, you load up,” Okunrinboye said.
Even so, Nigeria’s annual inflation rate is expected to have accelerated by 27.7% in October, when data that’s scheduled for release later on Wednesday is published, according to a survey of economists by Bloomberg. That compares with 26.7% in September.

The record yield on the 2053 paper comes against a backdrop of calls from investors for the central bank to raise interest rates and get them closer to positive territory on a real, or inflation-adjusted, basis. Analysts also warn that Nigeria’s negative real yields deter foreign investors, even as the government seeks to attract capital by easing exchange controls alongside other reforms of the economy.

Samir Gadio, head of Africa strategy at Standard Chartered Plc, said an assumption that market conditions will normalize in the medium0term increased the demand for the longer term paper.

“Bond yields are now at record highs, so it makes sense to increase duration exposure if one assumes that market conditions will normalise medium-term,” he said.