Foreign investors are displaying a lack of interest in Nigerian debt, with yields on Eurobonds rising amid a surge in global emerging-market bond sales.
The first four days of 2024 witnessed a record-breaking $24.4 billion worth of bonds sold by emerging-market governments and corporates, showcasing a strong appetite for higher returns in the wake of a slowdown in US interest rates.
While countries like Mexico and Indonesia experienced heightened investor demand, Nigeria faced challenges drawing attention to its Eurobonds. Yields on Nigeria’s outstanding Eurobonds increased, reflecting a divergence from the global trend.
Nigeria’s $1.25 billion Eurobond issued in 2022 saw its yield rise to 10.4 percent, up from 10.08 percent at the beginning of 2024. Bonds maturing in November 2027 and November 2025 witnessed the most significant increases, with yields rising by 70 and 60 basis points, respectively.
Despite lower global interest rates, Nigeria’s acute dollar shortages have overshadowed the potential benefits. Investors remain skeptical about the government’s ability to boost dollar revenues, particularly with a significant portion of anticipated oil production already committed to forward sales.
A London-based fund manager highlighted concerns about Nigeria’s foreign exchange (FX) shortage, stating that while there is optimism about resolving the crisis, doubts persist about the government’s pace in generating dollar revenues.
Nigeria has taken steps to restore confidence in its FX market, with the Central Bank of Nigeria (CBN) clearing a portion of the FX backlog that has hindered investor participation. The CBN has also signaled a new direction for FX policy, allowing the naira to weaken in pursuit of real price discovery.
Despite a $2.25 billion facility from the African Export-Import Bank (Afreximbank) aimed at stabilizing the naira, the currency’s struggles persist. The official trading rate of the naira reached N874.79 per dollar, a significant decline from the previous day’s rate of N1,082 per USD.
While efforts are underway to address Nigeria’s FX challenges, the reluctance of foreign investors to engage with Nigerian debt highlights the complexities the country faces in attracting international capital.