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Nigeria’s Naira Gains as Bond Buying Offsets Corporate Demand

Nigeria’s naira rallied as inflows from purchases of local debt offset any increase in corporate demand for dollars.

The currency of Africa’s biggest oil producer climbed 0.1 percent to 157.59 a dollar as of 12:48 p.m. on the interbank market in Lagos. The naira has appreciated 3 percent this year, the best performer in Africa, according to data compiled by Bloomberg.

Nigeria’s seven-year borrowing costs dropped 324 basis points to a record low at a monthly debt auction last week after JPMorgan Chase & Co. said it may include the bonds in its emerging-market index series on Oct. 1 over a three month phased period.

“An important recent development in strengthening naira sentiment was the decision by JP Morgan to include Nigerian government bonds in its Emerging Market Government Bond Index,” Ecobank Transnational Inc. analysts, led by Paul-Harry Aithnard in Paris, wrote in a report today. “It will help increase demand for naira as funds that track the index seek to buy Nigerian government securities in order to maintain their replication of the index.”

The yield on Nigeria’s 7 percent domestic bonds due June 2019 rose seven basis points to 12.61 percent, according to yesterday’s data on the Financial Markets Dealers Association website. Yields on the nation’s $500 million of Eurobonds due January 2021 were little changed at 4.78 percent today.

Inflows into bonds “should therefore offset any depreciatory pressure arising from corporate demand,” sustaining the naira below 158 per dollar, Celeste Fauconnier and Nema Ramkhelawan-Bhana, strategists at Rand Merchant Bank in Johannesburg, wrote in an e-mailed note to clients today.

Ghana’s cedi rose 0.2 percent to 1.9165 a dollar in Accra, the capital.

Editors: Peter Branton, Ash Kumar

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