Nigeria Yields Retreat to 10-Month Low at Sale on Dropped Bondholder Rules

Nigeria’s borrowing costs plunged to the lowest in 10 months in the first bond auction since dropping requirements for investors to hold government debt for at least a year.

Africa’s biggest oil producer sold 70 billion naira ($460 million) of bonds due 2014, 2015 and 2018 yesterday, the Abuja- based Debt Management Office said in a statement published today on its website. Yields on the 4 percent debt due 2015 tumbled to 10.7 percent, from 12.75 percent at the last monthly auction, the lowest since a sale in September.

Bond yields in the secondary market have been falling after central bank Governor Lamido Sanusi said on June 23 Nigeria would lift bondholder restrictions. Sanusi is opening Nigeria’s debt markets to attract more capital and prevent a weakening of the West African nation’s currency pushing up inflation and damaging economic growth, he said in March.

“There is a lot of bullish sentiment in the market,” Alan Cameron an economist at CSL Stockbrokers Ltd. in London, said in a phone interview today. “Yields are coming in partially because of the rules and partially because of inflation.”

Yields on the 10.5 percent notes due 2014 declined to 10.2499 percent at the auction today, the lowest since the notes’ March issue, and down from 11.69 percent at last month’s sale. The DMO sold 25 billion naira of 10.7 percent bonds due 2018, yielding 11.5 percent.

Stronger Naira

The naira has strengthened 3 percent since Sanusi’s announcement, appreciating to 152.17 per dollar on the interbank market as of 11:31 a.m. in Lagos, according to data compiled by Bloomberg.

The stronger currency is helping to curb the cost of imported food and slow inflation to 10.2 percent in June from 12.4 percent in May. The central bank’s target is below 10 percent, with policy makers increasing the benchmark interest rate three times this year to 8 percent to stem price rises.

Yields may reverse a downward trend as the Central Bank of Nigeria’s monetary policy committee is expected to increase rates by 50 basis points to 100 basis points, said Cameron.

“The policy rate is still negative in real terms, they’ve been pretty clear about the fact that to them, to the CBN, the policy normalization means getting the policy rate above inflation,” he said.

Nigeria plans to sell more “longer-tenured” bonds in the fourth quarter to boost liquidity in the market, Abraham Nwankwo, director general of the Debt Management Office, said by phone July 17. Nigeria issues sovereign bonds once a month.

To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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