Nigeria’s Eurobond yield soar amid Hike in CBN’s interest rate

On the backdrop increase in interest rate by the Central Bank of Nigeria (CBN),’s Eurobond yields for long term instruments are still hovering above 14 per cent, data from the Debt Management Office (DMO) has revealed.

After holding the MPR constant at 11.5per cent for about two and a half years, the Monetary Policy Committee (MPC) of the apex bank, raised the benchmark interest rate by 150 basis points to 13per cent in response to global inflationary pressure and increase local securities attractiveness.

Although the current report by DMO as of July 18, 2022 on Nigeria’s Eurobonds closing prices and yields has not reflected the current hike in CBN’s interest rate to 14 per cent.

The 286th meeting of the MPC members on Wednesday further increase interest rate to 14.0 per cent while maintaining Cash Reserve Ratio (CRR) at 27.5 per cent, the Asymmetric corridor at +100/-700 basis point around the MPR, and the Liquidity ratio was retained at 30.0 per cent.

For instance, Nigeria’s Eurobond Yield with a maturity of 2029 closed trading July 18, 2022 at a yield of 14.676 per cent from 13.624 per cent recorded as of the end of July 1, 2022.

The Eurobond has a total face value of $1.25 billion and was borrowed at a coupon of about 8.375 per cent when it was initially issued.

The uptrend in Nigeria’s Eurobond yield occurs when investors in the international debt market sell Nigerian Eurobond, triggering a fall in the prices of the bonds. In other words, there is an inverse relationship between bond prices and their yields.

The rise in Eurobond yields means that Nigeria will pay huge interest in order to incentivise market players to buy its Eurobond.

Also, Nigeria’s Eurobond Yield with a maturity of 2023 closed trading July 18, 2022 at 8.960 per cent from 7.751 per cent DMO reported as of July 1, 2022.

Market analysts had expressed optimism that local investors in fixed income market may benefit from the rate hike, with adverse effects expected in the equities market, but this is yet to be seen.

Bond yields have risen in the last few weeks driven by the increase in US Interest rates by the US Federal Reserves.

The US Fed commenced rate hikes in response to the record-high inflation rate experienced in the world’s largest economy.

The Minister of Finance, Zainab Ahmed, had explained that the government had shelved its plans to raise about $950 million selling overseas bonds, owing to unfavourable market conditions during the time frame approved for the fundraising.

She had said in April that the government planned to sell as early as May its second external debt this year to help plug fiscal deficits. The planned $950million bond sale would account for the balance of $6.1 billion in overseas borrowings planned for 2022 after it raised the second tranche of $1.25 billion in March.

A report by Bloomberg quoted the Minister of saying in an interview on the sidelines of the Islamic Development Bank meetings in Egypt, “We were not able to do that because the market pricing was not good and also the approval period for us has closed. The approval period was up to May 31, 2022, so we are not going to be able to take that one anymore.”