Markets are looking more familiar these days. In our report, FGN bond yields on the move (18 July 2022), we discussed how Federal Government of Nigeria (FGN) bonds denominated in US dollars were yielding more than equivalent ones in Naira.

As we expected, this was a short-term occurrence, and the relationship has been restored to normal.

A month ago Nigerian Eurobonds were under considerable selling pressure driven by the aggressive monetary policy tightening by major central banks and the deterioration in risk appetite amid mounting global geopolitical tensions.

In addition, concerns over Nigeria’s fiscal outlook intensified. Consequently, the spread between the 5-year Nigerian Eurobond and the comparable US Treasury yield sat above 1,000bps, a level associated with countries in fiscal distress.

In just under a month, Nigerian Eurobonds appear to be staging a recovery. The FGN’s US dollar 5-year bond now yields 10.6% (a 404bps compression), the entire yield curve has shifted downwards, while Nigeria’s premium has dropped to 760bps.

The recovery in Nigerian Eurobonds comes from the broader bull-flattening bias across core bond markets as traders readjust their interest rate and growth outlooks for the developed world. In addition, fears of a global recession are intensifying as investors fret that the aggressive policy tightening to rein in inflation will stifle economic activity.

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