Risk-Off Sentiment Elevates Nigeria Eurobond Yield to 19.54%

The yield on Nigeria’s US dollar bonds has risen to 19.54%, driven by risk-off sentiment and declining inflation rates. This trend has led to sell pressures on Nigerian Eurobonds, prompting caution among investors. Economic indicators are improving, yet uncertainty persists regarding future interest rate policies from the Federal Reserve.

The average yield on Nigeria’s US dollar bonds increased by 12 basis points to reach 19.54% in the international market, influenced by a deceleration in headline inflation. Improvements in key macroeconomic metrics contributed to the stabilization of the naira, supported by interventions from the monetary authority. Despite this, bearish sentiment persisted in the Eurobond market, as risk-off attitudes influenced trading activities with several African sovereign assets under selling pressure.

Selloffs affected various tenors of Nigerian Eurobonds as foreign portfolio investors responded to a decline in headline inflation, which has decreased to 23.18%. The resultant selling pressure pushed prices lower amid greater market uncertainty, compelling participants to await clearer signals regarding global risk appetite. Additionally, weaker-than-anticipated sales data intensified concerns over economic momentum, reinforcing the demand for safe-haven assets.

By the market close, the average mid-yield for Nigerian bonds escalated as traders reduced their holdings across short-, mid-, and long-term Eurobond maturities. The market saw yield increases of 15 basis points and 13 basis points for the Nov-27 and Mar-29 maturities, respectively. Analysts predict that the negative market sentiment will likely continue, unless positive developments arise on either the international or local levels.

In the United States, bond investors are preparing for an economic downturn by reducing their exposure to risky assets, while many are extending the duration of their fixed-income portfolios in light of a Federal Reserve that is not expected to begin cutting interest rates soon. Fed Chair Jerome Powell is anticipated to indicate a patient approach regarding rate cuts during his upcoming press briefing, noting that the economy does not exhibit signs of a significant downturn.

Investors will closely monitor quarterly economic projections from Fed policymakers, including interest rate forecasts presented in the “dot plot,” which illustrates anticipated easing. According to the December projections, two rate cuts are expected within the year, which would adjust the federal funds rate to 3.9%.

In summary, the average yield on Nigeria’s US dollar bonds has surged amidst prevailing risk-off sentiments, increasing to 19.54% due to recently stabilized macroeconomic indicators. As bearish sentiment influences trading in the Eurobond market, investors remain cautious amidst declining inflation and its implications for economic momentum. Furthermore, the Federal Reserve’s future monetary policy remains in focus as investors await updates on interest rate projections.

Original Source: dmarketforces.com