The Debt Management Office has released data showing that the yields on all of its outstanding Eurobonds have experienced a significant increase this year. The rise in interest rates has caused unease in Nigeria and other developing nations, deterring them from participating in the global bond market. However, as rates begin to ease, a renewed interest in debt is possible. On Wednesday, the yield of the government’s 2022 $1.25 billion Eurobond experienced a surge, reaching 10.4 percent compared to its initial 10.08 percent on the first trading day of 2024.
Despite the increased demand for emerging-market bonds this year, Nigerian debt fails to attract foreign investors, unlike other nations experiencing an uncontrolled interest. In the time of lower US interest rates, investors are eagerly gathering record bonds from various emerging markets in search of lucrative returns. For example, over the initial four days of 2024, a considerable sum of $24.4 billion was raised through the sale of bonds by emerging-market nations, including Mexico and Indonesia, in addition to other corporations.
With its potential interest, Nigeria is not receiving as much focus.
According to Bloomberg data, the current year has witnessed an exceptionally busy beginning in terms of issuing debt denominated in dollars and euros by developing countries. However, Nigeria seems to be an exception, as it is not receiving as much focus as other developing markets despite its potential interest in accessing the Eurobond market to alleviate its persistent dollar scarcity. The Eurobonds that possess the most similar duration among the existing bonds experienced the most substantial flows.
Also, the interest rate on the bond worth $1.5 billion, set to mature in November 2027, escalated by 70 basis points, standing as the most substantial increase within the bond collection. Subsequently, the $1.1 billion bond maturing in November 2025 saw a rise of 60 basis points, ranking as the second-highest increase. Nigeria and other developing nations were once filled with fear of the daunting high interest rates that prevented them from accessing the global bond market.
Serious shortages of dollars worsen Nigeria’s situation.
However, as rates begin to decline, their quest for debt begins to resurface. The recent drop of the 10-year US rate to around 4 percent has significantly altered the sentiment of both borrowers and investors alike. Nonetheless, Nigeria’s difficult situation seems to be hurt by serious shortages of the dollar, overshadowing the positive effect of lower interest rates. The country is actively taking steps towards rebuilding trust and assurance among investors in its foreign exchange market, following a period of hurtful instability lasting for eight years.
An example of this can be seen with the recent actions of the Central Bank of Nigeria (CBN), as they have effectively addressed a portion of the previous foreign exchange (FX) backlog. This clearance not only brings relief to hesitant investors but also signifies a fresh approach to FX policy, given the significant devaluation of the naira that occurred last June. Notably, airlines and international banks are among the entities that have been successfully resolved through this initiative.
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Lastly, the official market has seen the naira being intentionally devalued to reach an alarming ₦1,000 per US dollar low. The aim behind this move by the CBN is to achieve genuine price discovery. Unfortunately, even with the injection of a substantial $2.25 billion facility from the African Export-Import Bank (Afreximbank) and other investors, the expected outcome of stabilising the naira has not materialised. However, The Bank’s dedication to resolving outstanding obligations and facilitating an operational foreign exchange market is emphasised by this.