Foreign Investors Park Cash in Nigeria USD Bonds

Benchmark yield declined as Nigeria’s sovereign US dollar bonds gained foreign investors’ attention in the international market, trading results posted on Friday show. Portfolio holders rotate interest across tenor instruments to align their interest, a similar pattern was witnessed in the secondary market for Nigerian bonds.

Long U.S. bond yields edged lower with the 30-year Treasury rate logging its sharpest 4-week drop of the year, as recent data pointed to a slowing economy. Foreign investors sold a net $1.7 billion of US Treasury securities in September according to Treasury International Capital System data, the first net outflow since May 2021.

The US 10-year Treasury yield declined by 4.4 basis points to 4.4%, 2-Year Rate fell by 3.3 basis points to 4.81% on Friday.

The buying sentiment on the Nigerian Eurobond was evident across the short, mid, and long ends of the yield curve, leading to a decrease in the average yield by 16 basis points to 10.96%, Cowry Asset Limited told investors in an update.    

Africa’s largest economy by size of GDP estimated at $450 billion plans to spend N26.01 trillion in 2024 on more than 200 million Nigerians.

The nation’s approved 2024-2026 Medium-Term Expenditure Framework (MTEF) and Fiscal strategy paper shows the spending plan is 14.8% higher than the approved budget for 2023.

Unlike previous budget estimates, the proposed capital expenditure estimate is lower by -5.4% at N6.8 trillion versus N7.2 trillion budgeted for 2023, according to investment banking analysts’ review.

The MTEF’s underlying assumptions indicate that the FGN expects an oil price benchmark of USD73.9 per barrel with an oil production level of 1.78 million barrels per day at an exchange rate of N700.

The inflation rate is expected to be around 21.4% with a GDP growth rate of 3.76% year on year in 2024 -with the bulk of the projected growth expected to come from the non-oil sector.

Nigeria’s budget deficit is projected at N9.05 trillion for next year, a decline from the N11.6 trillion budgeted for fiscal year 2023. The deficit is expected to be financed by new borrowings totalling N7.8 trillion split into domestic N6.04 trillion and external: N1.76 trillion.

In a comment, Coronation Research analysts said they expect reliance on domestic borrowing, as the International Capital Market remains expensive for emerging economies, like Nigeria. Futureview US Dollar Fund Return Hits 7.42%

In the secondary market for FGN Bonds, trading activities ended on a bullish note.  As a result of buying interest, the average yield declined by 6 basis points (bps) to close at 15.73%. Traders noted that there was positive Interest in the MAR-24 instrument.  #Foreign Investors Park Cash in Nigeria USD Bonds
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