Nigeria’s Longest-Dated Bond Reopens, Oversubscribed at Record 18% Yield

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The reopening of Nigeria’s longest-dated bond, the 2053 maturity, was oversubscribed more than three times at an auction, drawing total subscriptions of 330 billion naira ($364 million). The record yield for the 2053 paper stood at 18%, attracting investors seeking a long-term asset with a high yield, which is significantly above long-term inflation. The preference for the longer-dated debt was evident, while shorter tenor notes, including the 2029, 2033, and 2038 maturities, were undersubscribed at the same auction.

Key Points:

  1. Oversubscribed Auction:
    • Nigeria’s Debt Management Office reported that the reopening of the 2053-dated bond was oversubscribed by more than three times, with total subscriptions reaching 330 billion naira.
  2. Record Yield:
    • The 2053 paper was offered at a record yield of 18%, attracting investors betting on the potential for a handsome return over inflation in the long run.
  3. Preference for Long-Term Assets:
    • Investors, particularly pension funds, are drawn to long-term assets with higher yields, aligning with their goal of meeting long-term liabilities.
  4. Inflation Concerns:
    • Nigeria’s annual inflation rate is expected to have accelerated to 27.7% in October, according to economists’ estimates, compared to 26.7% in September.
  5. Market Conditions and Duration Exposure:
    • Analysts suggest that the assumption of normalizing market conditions in the medium term increased demand for longer-term paper. Bond yields are at record highs, encouraging investors to increase duration exposure.
  6. Calls for Interest Rate Hike:
    • Some investors have called for the central bank to raise interest rates to get them closer to positive territory on a real, or inflation-adjusted, basis.
  7. Negative Real Yields and Foreign Investor Deterrence:
    • Nigeria’s negative real yields are seen as a deterrent to foreign investors, even as the government seeks to attract capital through economic reforms.

Conclusion:
The oversubscription of Nigeria’s longest-dated bond at a record 18% yield reflects investors’ appetite for higher returns in a market environment with elevated inflation. The preference for longer-dated assets underscores the strategic approach of investors, especially pension funds, in managing long-term liabilities. However, concerns about inflation and the appeal of positive real yields remain prominent in discussions about the country’s economic reforms and investment climate.

BD

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