U.S. Fed Rate Hold Triggers Sell-Off of Nigeria Eurobonds Amid Global Market Shifts
The decision by the U.S. Federal Reserve to hold interest rates steady has contributed to a significant sell-off of Nigerian Eurobonds, as foreign investors pulled back from riskier assets. Analysts from Meristem suggest that the Fed’s unchanged rate policy and the ongoing shift away from African assets have heightened the risk-off sentiment, leading to capital flight towards safer investments. This has caused a rise in the average Eurobond yield, which climbed by seven basis points to 9.36% from 9.29% the previous week, according to data from Nigeria’s Debt Management Office.
The Federal Reserve’s decision, maintaining its benchmark interest rate between 4.25% and 4.50%, has sparked caution among global investors. Federal Reserve Chairman Jerome Powell noted that policy restraint could continue if inflation doesn’t sustainably decrease towards the 2% target. This uncertainty surrounding U.S. economic policy is also compounded by geopolitical tensions, including ongoing trade disputes between the U.S. and China, which are further dampening investor confidence in emerging markets like Nigeria.
Along with the retreat from African assets, investors are increasingly turning to better-performing markets such as Europe and China. The S&P 500, which tracks the performance of leading U.S. companies, avoided a fourth consecutive weekly loss following the Fed’s decision, but has still faced a year-to-date loss of 3.6%. In contrast, the European Stoxx 600 index has gained 8.3% this year, with global markets, including Europe and Hong Kong, offering more attractive valuations compared to U.S. stocks.
Despite the challenges facing Nigeria’s Eurobonds, analysts from CardinalStone remain optimistic about their performance. They forecast that Nigeria’s Eurobonds will outperform their benchmarks due to the country’s improving debt sustainability and economic indicators. The country is also expected to tap into the Eurobond market this year to finance its $1.12 billion debt maturity, potentially supporting the country’s declining external reserves and attracting renewed interest from investors.
source: business day