…Bid to cover collapses to 0.3 on 5-year
In a bid to move investors to the long end of its yield curve to have some wiggle room for debt servicing, Nigeria offered yields as high as 16.24 percent and 16.43 for debt maturing in 2026 and 2036, the highest since March 2015.
The country’s yield curve has been inverted in the last five months, as short-term debt, like Treasury bills, returned higher rates, at 18 percent, compared to long term rates that hit a peak of 15 percent in November.
“When you close the year by offering higher yields on long-term debt paper, it is a signal that it may surge further in 2017 as government will try to incentivise long-term investors so as to buy time to meet its debt obligations,” Tajudeen Ibrahim, head of research at investment firm Chapel Hill Denham said.
Fund managers who spoke to BusinessDay said they expect 10 and 20-year bond yields to spike in 2017, as government compensates long term investors, while attempting to lure the short-term investors to make longer commitments.
“The country’s 2017 fiscal road-map, which indicates that the country would extend its debt maturity to create breathing space for debt servicing is spurring speculations that yields on longer-term debt will surge higher so as to be attractive enough for investors,” one fund manager told BusinessDay.
Kemi Adeosun, the Finance minister noted in the fiscal road-map that the country would rebalance its public debt portfolio with increased external borrowing to offset high domestic borrowing costs.
Nigeria plans to raise N1.25 trillion locally and N1.06 trillion externally, as stipulated in its 2017 budget.
Although yields on 10-year and 20-year bonds were attractive enough for investors, Nigeria’s five-year bonds, at 15.8 percent, returned undersubscribed as the bid to cover ratio collapsed to 0.3.
Traders said investors demanded 18 percent for the 5-year bonds which was above the mid-point at which the Debt Management Office (DMO) wanted to issue them.
The DMO ended up raising N69.2 billion ($227 million) in bonds maturing in five, 10 and 20 years’ time, N25.8 billion less than the N95 billion it had wanted.
“It gives a sense that investors are not so confident of the country’s macro-economic fundamentals in the next five years,” one bond trader who did not want to be named said.
LOLADE AKINMURELE
