By Dickson Pat
Driven by positive sentiment about its economic outlook, foreign portfolio investors ,FPIs, increased bets on Nigerian sovereign Eurobonds in the international market amidst the U.S. government shutdown.
Due to buying interest, the average yield on Nigeria’s US dollar-priced bonds hovered around 8% versus the 10-year US Treasury yield of 4% on Thursday.
Fixed income market analysts said the trading direction suggests that foreign investors are adjusting portfolios as markets begin to query the dollar as safe asset, with dollar index ,DXY, declining over economic uncertainties.
With the ongoing U.S. government political deadlock, offshore investors shifted their attentions to oil-rich African issuers with juicy yields on their dollar-denominated bonds papers.
Reflecting offshore sentiment, expectations, the Nigerian Eurobond market maintained the bullish performance on Thursday, buoyed by strong, broad-based investor demand.
Buying interest was particularly robust in the FEB-2030 and FEB-2032 papers, which contributed to a 7 bps decline in average yields to 7.88% across the short-, mid-, and long-dated segments of the curve, according to Cowry Asset Limited.
The African Eurobond market traded mixed amid softer oil prices, supported by increased risk-on sentiment and rising expectations of a U.S. Fed rate cut in October, following concerns over government shutdown and softer labor market indicators.
Angola papers rallied, but the market experienced a soft sell-off in Ghana. Though Sub-Saharan African economies have substantial funding needs for development, negative external influences have started to clear.
Ghana, which was previously blocked from accessing external loans, has started to claw back. Nigeria remains rock solid in financing external obligations.
High debt costs remain key barriers despite access to funding broadening over time. Three of the largest markets South Africa, Kenya and Nigeria face a combination of structural weaknesses which keep borrowing costs high and will take time to address, Moody’s said in a note.
Investors’ sentiment is expected to remain cautious amidst reaction to the U.S. government shutdown.Oil-rich countries with Eurobond papers were the major attraction in the market.
On Thursday, oil prices edged lower, extending a run of declines into a fourth day, with Brent hitting its lowest since early June due to concerns about oversupply in the market.
Brent crude shed $1.14, or 1.74%, to $64.21 a barrel, while U.S. WTI dipped $1.19, or 1.93%, to $60.59.
Gold prices fell nearly 1%, retreating from a record high hit earlier in the session, after Federal Reserve Bank of Dallas President Lorie Logan urged caution on further interest rate cuts. Spot gold dipped 0.47% to $3,847.78/oz, while U.S. gold futures receded by 0.65% to $3,872.10/oz.
