Nigeria Eurobonds pare losses as naira strengthens to N850/$

Yields on Nigerian Eurobonds fell Thursday after two straight days of losses, as sentiments improved after the country’s state-owned NNPCL secured a $3 billion loan that will help boost the supply of dollars into the illiquid foreign exchange market.

Nigeria’s benchmark dollar bond due in 2047 gained 2.1 cents on Thursday to 69.49 cents on the dollar, the biggest daily jump since July, pushing the yield down to 11.34 percent. The country’s other dollar bonds also posted gains on the day.

The Eurobonds were on a two-day losing streak before now, after investors feared that the likely resumption of petrol subsidy will divert some of Nigeria’s scarce dollar earnings to the unsustainable practice.

President Bola Tinubu, who said there will be no further increases to the retail price of petrol, came under pressure after a sharp slide in the naira necessitated a commensurate increase in petrol prices.

That pressure however seems to be easing at least in the short term following the $3 billion loan secured by state-owned oil company, NNPCL which has helped the naira halt its sharp slide.

The naira had fallen to as low as N950 per US dollar at the more accessible parallel market but has since recovered to exchange at N850 per USD as of Thursday morning.

“The FX liberalisation process has hit a bump in the road with an overly loose monetary policy stance, continued monetisation of the budget deficit and re-emergence of a large parallel-market premium,” Patrick Curran, senior economist at Tellimer Ltd. in London, told Bloomberg.

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Nigeria’s Eurobond saw its yields drop on the third day on Thursday which indicates a return of investors’ confidence in the market.

FGN Eurobonds issued on November 21, 2018, saw a yield drop to 10.47 on Thursday from 11.08 on Wednesday which is a sign of high investor confidence.

Eurobonds issued on 28 November 28, 2017, yield stood at 10.80 on August 17, 2023, from 11.41 on August 16, 2023.

Similarly, FGN Eurobonds issued on November 21, 2018, saw a yield at 11.23 on Thursday from 11.67 on Wednesday.

Eurobonds issued on February 16, 2017, saw its yield drop to 11.23 on Thursday from 11.62 on Wednesday.

For Eurobonds issued on November 28, 2017, yield dropped to 11.34 on Thursday from 11.69 on Wednesday.

FGN Eurobonds issued on November 21, 2018, saw its yield drop to 11.54 on August 17, 2023, from 11.87 on August 16, 2023.

Nigeria’s bonds had been on a tear through June after the election of President Bola Tinubu, whose early initiatives pleased investors and boosted confidence in the nation’s economic outlook.

Tinubu announced on Tuesday that the government was suspending raising gasoline prices in a bid to slow inflation which reached 24.1 percent in July, according to data from the nation’s bureau office.

Razia Khan, head of research for Africa and the Middle East at Standard Chartered Plc, told Bloomberg: “The gas-price freeze appears to be a temporary price stabilization measure rather than a reversal of subsidy reforms.”

“Should this turn out to be a more permanent reversal of fuel-subsidy reforms, however, then that would be a clear credit negative, as Nigeria cannot afford the fuel subsidy in any meaningful way,” Khan said.