Nigeria’s Sovereign Eurobond Yields Drop to 10.3% Amid Easing Inflation and Increased Foreign Investment

Nigeria’s sovereign Eurobond yields have decreased to 10.3% as foreign portfolio investors have boosted their positions, reflecting increased confidence in the market following a recent easing of inflation. The decline in yields is attributed to a combination of improved macroeconomic conditions and growing optimism about Nigeria’s economic outlook.

Recent data from the National Bureau of Statistics (NBS) indicates that Nigeria’s headline inflation rate fell to 33.4% in July 2024, a decrease of 79 basis points. This marks the first easing of inflation in 19 months, driven by base effects and better food supply conditions in local markets. Despite this positive development, Afrinvest Limited noted that the decline was slightly below expectations, which had predicted a 107 basis point drop to 33.1%.

In the local bond market, a bullish trend emerged with the average mid-yield of FGN bonds decreasing by 18 basis points to 19.39% week-on-week. The Eurobonds market also showed positive momentum, with average mid-yields declining over several trading sessions. This optimism was partly fueled by expectations of a potential rate cut by the US Federal Reserve in September, despite US inflation data showing a modest 0.20% month-on-month increase and a year-on-year rise of 2.90%, slightly below the forecasted 3.0%.

The US Producer Price Index (PPI) increased by 2.20% year-on-year, down from 2.70% year-on-year, and by 0.10% month-on-month, down from 0.20% month-on-month in June.

In the Sub-Saharan African Eurobonds market, sentiment was shaped by widespread expectations that the Fed will ease its grip on interest rates following the release of softer inflation data in the US, Afrinvest said in a note. Hence, all papers in this market segment witnessed a yield decline, save the Gabon 2024 (+0.3%) and Benin 2038 (+8.6%) papers. 

Meanwhile, the strong performance of Ghana 2025 (-7.2%) and Ghana 2026 (-1.5%) instruments drove the average yield down 21 bps week on week to 19.8%.  Analysts said they expect bullish sentiment to persist as investors continue to price in the possibility of a rate cut in September.

The U.S. Treasury yield closed slightly lower on Friday, a day after fading recession fears led to an aggressive selloff as investors calibrated their expectations for the Federal Reserve’s next move.

The debate centers around how much of a cut in interest rates may come out of the meeting, with sentiment easing back to a cut of 25 basis points from the more aggressive 50 bps expected a few weeks ago.