Foreign portfolio investors are reducing Nigeria’s Eurobond holdings, contributing to a rise in yields to 9.02%. The CBN has maintained the Monetary Policy Rate without changes, while global economic concerns and bearish sentiment have led to significant asset trimming.
Foreign portfolio investors (FPIs) reduced their holdings of Nigeria’s sovereign Eurobonds in the international market due to a risk-off sentiment. Investor sentiment has turned negative as portfolio managers evaluate significant Nigerian market developments alongside global market conditions.
In its February meeting, the Central Bank of Nigeria (CBN) kept the Monetary Policy Rate (MPR) and other key parameters unchanged. This decision indicated a cautious stance as the CBN examined the effects of previous rate hikes on the economy, aiming to maintain market stability and allow previous measures to take effect, as noted by Erad Partners Limited.
The U.S. economy has shown signs of distress under the protectionist policies of President Donald Trump, who has employed an aggressive policy approach. Consequently, on Wednesday, profit-taking in the Eurobond market continued, albeit slowly, as investors aimed to liquidate their positions, initially buoyed by optimism regarding potential tariff changes under Trump.
Nonetheless, investor sentiment worsened due to a decline in oil prices and a disappointing private-sector jobs report that led to fears regarding economic growth. The ADP reported only 77,000 jobs added in February, which was significantly lower than forecasts and indicated economic vulnerabilities.
As a result, the average mid-yield for Nigerian Eurobonds increased by 5 basis points to 9.02%. Selling pressure was most pronounced on the shorter end of the curve, particularly affecting the Nov-25 maturity, which rose by 4 basis points. Analysts predict that negative sentiment will continue unless a positive development occurs, either internationally or locally.
The global fixed-income market saw significant volatility in February, influenced by changes in monetary policy, geopolitical tensions, and concerns over growth, as reported by CardinalStone Partners Limited. Bond yields across major economies declined, following trends in U.S. Treasury bonds. The yield on 10-year Treasuries fell to 4.2%, its lowest since early December 2024, reversing earlier bearish trends.
Initially, markets focused on inflation fears triggered by Trump’s tariff implementations, which raised expectations for sustained higher interest rates. However, sentiment shifted in February, leading to a gradual reduction in risk as investors reacted to weakening economic signals. This was reflected in the ISM manufacturing survey, which indicated an unexpected contraction in new orders and employment metrics, suggesting possible economic softening.
In summary, Nigeria’s sovereign Eurobond yields have risen as FPIs reduce their holdings amidst a bearish sentiment influenced by both domestic and international economic conditions. The CBN’s decision to maintain the MPR aims to avoid market destabilization while global economic uncertainties, exacerbated by disappointing jobs reports and the U.S. administration’s policies, further stress the investment climate. Analysts anticipate continuing negative sentiment in the absence of favorable developments.
Original Source: dmarketforces.com
