…investors cautious of geopolitical tension
Nigeria’s Eurobond yields rose last week, as the US Federal Reserve’s cautious stance on rates bolstered the dollar and other financial instruments, causing sell-offs on the sovereign bonds.
Nigerian maturities saw yield expansions, with average yield edging up by two basis points to 7.07 percent from 7.05 percent, driven by renewed sell pressure along the mid and long end of the curve.
This is because investors are increasingly cautious of volatility in these regions as higher US rates steer attention back to safer, U.S. domestic assets.
The Federal Reserve paused its streak of interest rate cuts on Wednesday, opting to keep the benchmark rate between 3.5 percent and 3.75 percent. This decision, which aligns with market forecasts, ends a series of three consecutive quarter-point reductions. The central bank now faces a period of transition as it manages leadership changes and ongoing debates regarding its independence.
Read also: Nigeria’s Eurobonds recover from global sell-offs
There is intense market speculation about the next Fed Chair (with candidates like Scott Bessent being discussed). If the Fed loses its independence and is forced by the White House to cut rates faster than inflation allows, the US Dollar could weaken significantly.
The African Eurobond market traded bearish as investors took profit ahead of the anticipated U.S. Federal Reserve decision.
The most pronounced sell-offs on Nigerian bonds were observed on the 23-Feb-38 and 28-Nov-47 bonds, both rising by seven basis points, as well as the February 2032 and September 2033 instruments which increased by six basis points each.
This shows investors remain cautious amid geopolitical tension. Demand remained strong at the short end of the curve, with buying interest in the Nov-2027 (8 basis points), September 2028 (two basis points), and March 2029 (-2 basis points) bonds.
“We expect similar performance next week as investors continue to favour short-dated instruments,” Matilda Adefalujo, fixed-income analyst, Mersitem Securities.
