Nigeria bond yields fall as traders buy debt after FX shift

by | May 25, 2016 3:31 pm



Yields on Nigeria’s government bond fell across maturities on Wednesday as traders bought debt to cover their positions, a day after the central bank kept interest rates on hold but pledged a flexible currency policy to lure back foreign investors.

On Tuesday, the central bank said it would adopt a flexible exchange rate policy, a shift from a peg for the naira seen as overvalued, which had hampered growth and investment.

Bond yields fell between 11 and 46 basis points across maturities with liquid five-year debt down the most to 13.24 percent. Yields on the 2020 bond has been falling since last week in the run-up to the central bank meeting.

Before the central bank decision, traders had taken a short position on debt, expecting the monetary policy committee to hold rates at 12 percent to boost Africa’s biggest economy so as to tackle slowing growth.

The 20-year benchmark paper, the most traded on Wednesday, fetched 13.24 percent, down 11 basis points from Tuesday’s close.

Analysts expect the shift to a flexible interbank market from a de facto peg of around 197, which the central bank has retained for 15 months, to boost investor confidence and create more dollar liquidity.

But traders say many foreign investors are unlikely to return in the short term after exiting the debt market, prompted by JP Morgan’s decision last year to kick Nigeria out of its government bond index due to currency controls.