Friday, September 17, 2021

    Naira bonds lose almost 10% in dollar terms in Q1 as dwindling liquidity keep investors weary

    Must read

    Ejiro Lucky
    Obodo Ejiroghene Lucky [Chief Economist] Mr. Ejiroghene Obodo is an economist with over 15 years in Journalism, which cuts across Research and Data analysis. Mr Obodo, a graduate of Columbia University, New York City, with a Degree Journalism Graduate School Field Of Study Citi Journalism Seminar Ejiro was the Online Editor at BusinessDay Media, where he oversees the online editorial department. Proir to this Mr. Ejiroghene Obodo, also known as Lucky, served as a Senior Research Analyst at BusinessDay Research and Intelligence Unit. Prior to this, he was an Analyst at the firm. Ejiro has won series of International awards which includes the most coveted awards Citi Journalistic Award for 2013 See his professional profile listed on Bloomberg

    By Tope Alake and Colleen Goko

    Naira bonds have lost almost 10% in dollar terms this quarter as dwindling liquidity concerns keep investors wary of Nigeria’s local-currency debt.

    The Nigerian currency bond extended their year-to-date decline to more than 28%, the worst in the Bloomberg Barclays Global Emerging Markets local currency index. That’s almost double the loss for Turkey, the second-worst performer.

    Although consumer-price increases slowed in April for the first time in 20 months, the inflation rate in Africa’s biggest economy remains above 18%. Even with benchmark 10-year naira yields rising above 13% as the budget deficit widened during the pandemic, that’s still handing investors a negative real return.

    “There could be further upside for yields,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank. “Pension funds and local investors will probably seek to push yields even higher for now given negative inflation-adjusted rates and the sharp decline in bond maturities in May to June.”

    The West African country’s debt has wiped out more than half of last year’s gains, when it outperformed the 7.5% return on the emerging-market index with an advance of 32%. The Bloomberg Naira Local Sovereign index fell 0.2% on Monday as the average yield climbed 13 basis points to 13.3%, more than three times the emerging-market average of 4%.

    “Bonds are finally repricing to more adequate levels from excessively expensive valuations previously,” said Gadio. That’s been driven by a rise in short-term interest rates, more long-dated bond supply at auctions and the spike in inflation, he said.

    The central bank will probably continue to drain cash from the financial system in a bid to contain inflation, said Omotola Abimbola, an analyst at Chapel Hill Denham in Lagos. That could further reduce demand for debt as liquidity tightens.

    - Advertisement -spot_img

    More articles

    - Advertisement -spot_img

    Latest article

    WP to LinkedIn Auto Publish Powered By :