Average Yields on Nigeria’s Dollar-denominated bonds are 1.37 percentage points lower than it stood at the beginning of the year, as a mix of global and domestic factors play out in the favour of emerging markets although slowing global growth may remain a double-edged sword, experts say.
At the start of 2019, yields up to 8.25 per cent were offered for Eurobonds by the Nigerian government and the figure broadly speaking has trended downward since.
Data from FMDQ showed average yield on Eurobond fell by 4.18 basis points to an average figure of 6.88 per cent, Thursday last week.
“A lot of factors both on the domestic front and globally have contributed in varying degrees to the rally across the emerging market,” Nnamdi Olisaeloka, a Lagos-based fixed-income analyst at Zedcrest explained.
Since the pause of rate hike by the United State Feds earlier in January, emerging markets have seen the renewed interest of Foreign Portfolio Investors (FPI), with carry trade intensifying relative to activities last year.
In February, Bloomberg reported that African markets dominated the top gainers’ list for Eurobond outperforming other emerging market.
For Nigeria, a positive Brent market so far in the year has seen investors’ confidence in the country’s debt sustainability rise. Brent has been above Nigeria’s benchmark of $60bp since January 28 and closed at $67.20 on Thursday.
More so, data from the National Bureau of statistics suggest an improving macroeconomic environment as Gross Domestic Product for 2018 Q4 show a 2.34 per cent growth rate, the most since Q3 2015 while inflation eased 0.06 percentage points to 11.31 per cent in February according to the state-funded data agency.
Nigeria’s reserve is near $42 billion and the naira has strengthened on the back of stronger inflow which has helped the stability of the naira currently at N360/$ in the parallel market on Thursday, compared to N363/$ at the beginning of the year.
In Africa, political risks in South Africa which have a presidential election at hand and Ghana’s weakening cedi’s triggered by an unadvised rate hike earlier in the year has increased Nigeria’s attractiveness for FPI alongside Kenya.
However, even though the decision of major central Bankers across the globe to lower or hold their policy rates on the back of a gloomy global economy forecast by international organisations have favoured emerging market assets, experts including the Organisation for Economic Co-operation and Development (OECD) which released new growth figures recently believe a tepid global economic growth might bite financial markets across the world.
Olisaeloka says for now the only headwind confronting the rally in emerging markets is the slowdown in global growth expectations especially in Europe and China over trade tensions, Brexit, negative economic growth in Italy, and concerns in Germany which make investors mull safe-haven assets.
‘’Fears of a recession, for now, is making portfolio managers more cautious in emerging markets was they are now cherry-picking countries with relatively strong macro fundamentals,’’ the fixed income analyst said.
Nevertheless, given that positive indicators still, outweigh the downside risk of a slowing global economy and oil price along with other factors remain favourable, Olisaeloka maintains a positive expectation on Nigeria’s Eurobond in the near term.
SEGUN ADAMS
