Nigeria’s $1.5 billion Eurobond yield with a maturity of February 2031 rose to 14.29% as of July 12, 2022, according to data from the Debt Management Office.
The yield was about 13.4% at the end of June and was as low as 8.6% at the end of the first quarter of 2022 (Mar 31).
Nigeria’s ten-year Eurobond closed the first half of the year at a yield of 13.45% or $69.8 in unit price pointing to one of the worst yields in years for Africa’s largest economy. The current price is now $66.7.
The bond carries a coupon rate of 7.875% per annum, which is the interest received by original subscribers of the bond who prefer to hold to maturity.
What this means
Bonds are investment securities that trade just like stocks and their price is determined by the forces of demand and supply.
When investors show a lack of interest in bonds, the prices fall and the yield rises thus making it more difficult for cheaper borrowing.
Nigeria has stated that it does not have any immediate plans to tap the Eurobond market due to the high yield environment.
Issuing bonds in this market will cost the government more when it comes to paying back.
The lack of Eurobonds also shuts out an important source of dollar inflows for the country.
Why the spike?
Recall Nairametrics had highlighted a trend of rising Eurobond yields for Nigeria’s sovereign debts and explained this was due to dwindling demand for emerging market bonds by most foreign investors.
Emerging markets like Nigeria have seen bond prices fall following the Russia-Ukraine war and the decision by the US Fed to raise rates to combat rising inflation.
A recent Financial Times article indicates about $50 billion have been pulled out of emerging market bonds as borrowing gets harder at a reasonable cost.
A lack of demand for Nigeria’s longer-term Eurobonds is because demand has fallen as investors who hold these assets on a mark-to-market basis are selling.
A rise in Eurobond yield provides a unique investment opportunity for investors who are looking at diversifying their dollar-based portfolio assets, especially if they choose to hold the assets for the longer term.
For example, for any $10,000 invested in Eurobond at the current price, you earn about $1400 (gross of any applicable taxes).
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