The escalation in the Middle East conflict over the last week has led to sell-offs in Nigeria’s eurobonds, driving average yields to 7.17 percent on Friday last week from 6.98 percent the previous week.
“ Yields across the sovereign Eurobond curve edged up modestly by about 5bps yesterday, reflecting a broad risk-off response following the joint US-Israel strike on Iran,” Omobola Adu, economist and fixed-income analyst at CSL Stockbrokers.
Sell-offs were widespread across the curve, with a strong increase in the NOV 2027 papers (+30 bps), JAN 2031 (+24 bps), FEB 2032 (+23 bps), and SEPT 2033 (+29 bps) notes.
Before the war, the Nigerian Eurobond was on a bullish trend, with the average yield dropping to 6.95 percent lowest in four years, three weeks ago.
Read also: Nigeria’s Eurobonds hit by global sell-off on escalating Middle East tension
The bearish sentiment was felt across the continent, with Eurobonds in Sub-Saharan Africa trading weaker as the week opened.
This market turbulence follows a joint United States-Israeli operation targeting Iran’s nuclear and military infrastructure, a strike that resulted in the death of Ayatollah Ali Khamenei, Iran’s supreme leader. U.S. President Donald Trump stated over the weekend that the objectives of the mission must be met, signaling a potentially prolonged conflict.
For Nigeria, Africa’s largest oil producer, the crisis presents a double-edged sword: the promise of a fiscal windfall from soaring crude prices weighed against the threat of surging domestic energy costs and capital flight.
The strikes upended global oil market assumptions over the weekend. Brent crude was trading at an average of $100/bbl after OPEC+ agreed to a slight production increase to stabilise the market.
“ Despite this near-term pressure, we remain constructive on the Nigerian Eurobond market, particularly as yields had declined by roughly 3bps across the curve before the latest bout of risk aversion. Our positive stance is anchored on the continued resilience of macroeconomic fundamentals, supported by improving external balances, relative exchange rate stability, and stronger foreign currency buffers,” Adu said.
Other factors that support a bounce back are the net external reserves, which have been reported at approximately $34.8 billion, while gross reserves recently reached about $50.8 billion, which we believe should provide some comfort to bondholders. In addition, higher crude oil prices themselves provide incremental support to reserve accumulation.
do not have any significant external debt amortisation due this year, with payments of about US$2.6 billion (less than one percent of GDP) due this year, which we believe are manageable given the current external reserves level.
What should investors do?
Adu said that there is scope for further yield compression, particularly if macroeconomic conditions remain supportive.
“ A catalyst for outperformance could emerge from further sovereign credit ratings upgrades this year. Across the curve, we like the December 2034 instrument, which offers attractive return potential relative to the rest of the curve, in the advent of an average yield compression of around 52 basis points (0.52 percent),” he said.
This means that out of all the bonds available, the December 2034 bond is the most preferred. If its interest drops by about 0.5 percent as expected, this specific bond’s price will jump enough to give a better profit than the other bonds.
Read also: Africa Finance in Brief: Eurobond revival, policy divergence reshape markets
Why the Dec 2034?
Usually, analysts pick a specific long-end bond like this because it hits the sweet spot: it’s long-term enough to benefit significantly from falling rates, but not so volatile that it’s considered too risky.
