The average yield on Nigeria’s US dollar bonds has risen to 19.54%, influenced by declining inflation and macroeconomic improvements. Bearish sentiment and sell pressures persist in the Eurobond market, with concerns around economic momentum further complicating investor sentiment. As the Federal Reserve prepares for its next moves, the focus remains on economic projections and interest rates.
The average yield on Nigeria’s US dollar bonds has increased by 12 basis points, reaching 19.54% in international markets. This rise is attributed to a recent slowdown in headline inflation, coupled with improvements in key macroeconomic indicators and a stabilization of the naira supported by the monetary authority. The demand for local bonds remains strong, influenced by elevated yields, as analysts anticipate a shift in market dynamics leading to potential yield repricing in response to the upcoming March auction.
Bearish sentiment has characterized trading at the Eurobond market, with a notable risk-off sentiment affecting African sovereign assets. Foreign portfolio investors responded to a decline in headline inflation to 23.18% by selling Nigerian Eurobonds across various tenors. This persistent sell pressure resulted in lower prices amid extensive market uncertainty, causing market participants to adopt a wait-and-see approach for clearer indicators of global risk appetite.
Weaker-than-expected sales data has led to growing concerns regarding economic momentum, further fueling speculation about the Federal Reserve’s interest rate trajectory and enhancing the demand for safer assets. Consequently, the average mid-yield for Nigerian bonds experienced an uptick, as traders reduced their holdings in Nigeria’s sovereign Eurobonds across all maturity categories.
Sales were notably affected for the Nov-27 and Mar-29 maturities, with yields rising by 15 basis points and 13 basis points respectively. Analysts predict that the current negative sentiment will linger unless favorable developments arise, either internationally or locally. In the United States, bond investors are becoming increasingly cautious, reducing their risky exposures while extending duration in their fixed-income portfolios in light of the Federal Reserve’s cautious stance on interest rates.
During his upcoming press briefing, Fed Chair Jerome Powell is likely to convey that the committee will remain patient regarding rate cuts, as the economic landscape does not appear dire. Analysts opine that the U.S. central bank can afford to remain on hold as it seeks more clarity concerning the economic policies of the Trump administration. Investors are also expected to pay close attention to the Fed policymakers’ quarterly economic projections, which include interest rate forecasts, often represented through the ‘dot plot’ indicating expected easing amounts. The December dot plot indicated two rate cuts are anticipated this year, potentially leaving the federal funds rate at 3.9%.
The increase in yield on Nigeria’s US dollar bonds to 19.54% reflects the current risk-off sentiment dominating the Eurobond market. Weaker sales data and economic momentum concerns have intensified cautious trading activities. As analysts foresee continued negative sentiment unless favorable developments occur, investors are closely monitoring the Federal Reserve’s economic projections and signals regarding future interest rate policies.
Original Source: dmarketforces.com
