Nigeria’s Eurobond Yield rises to 10.6%

Nigeria’s Eurobond Yield with a maturity of 2022 closed trading on Friday at a yield of 10.6% up from 8.9% at the end of April 2022. The bond is expected to mature in 5 years.

It was also trading for 6.424% at the end of December 2021 and opened the year at about 6.384%

The Eurobond has a total face value of $1.5 billion and was borrowed at a coupon of about 6.5% when it was initially issued.

Bond yields have risen in the last few weeks driven by the increase in US Interest rates by the US Federal Reserves. The US Fed commenced rate hikes in response to the record-high inflation rate experienced in the world’s largest economy. The US Inflation rate stood at 8.3% in April.

Why it affects Nigeria

  • A hike in US interest rates is targeted at curbing inflation in the world’s largest economy which is achieved when the rate hikes lead to a rise in borrowing costs.
  • The rise in borrowing costs means people borrow less thus reducing the amount of cash in circulation in the US Economy.
  • Unfortunately, these rate hikes negatively affect emerging markets like Nigeria as it also means the cost of borrowing will be expected to rise.
  • The rise in Nigeria’s Eurobond yield occurs when investors sell Nigerian Eurobonds forcing prices to plummet. Bond yields are inversely proportional to bond prices.
  • The 2027 Eurobond closed with a price of $82.596 7 compared to $99.972 in January. A Nigerian Eurobond has a face value of $100 per unit.

Nigerian Eurobond Yields fall across the board

  • The drop is experienced across all the Eurobond tracked from the website of the Debt Management Office of Nigeria.
  • For example, the 7.875% US$1.5BN FEB 2032 Eurobond (matures in about 10 years) is trading at a yield of about 11.779%
  • The same bond was trading at a yield of 7.9% in January.
  • As of January 4th, the highest bond yield was the 9.248% US$750M JAN 2049 Eurobond which was trading at 8.99%. The bond currently has a yield of 12.3%.
  • Nigeria’s rising inflation rate is also a major concern.

What this means

  • The IMF recently expressed concerns that the rate hike in the US could trigger an economic crisis for emerging markets like Nigeria.
  • “Past episodes suggest that rapid interest rate increases in advanced economies can tighten external financial conditions for emerging market and developing economies.” IMF
  • The IMF is basically saying that as the US raises interest rates it reduces the amount of foreign investment coming into emerging markets and even forces capital flight as investors sell off the bonds.
  • The rise in Nigeria’s Eurobond yield suggests the IMF fear is already occurring.
  • Ghana has also seen its Eurobond yield cross 14% as investors dump the West African country’s bonds.
  • A higher Eurobond yield also means borrowing in dollars will be more expensive while investing in dollars should be lucrative.





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