Nigeria Yields Drop as Inflation Rate Falls to 5-Year Low

Borrowing costs on Nigeria’s $500 million of Eurobonds fell for a second day and local currency yields declined to a record low after inflation eased to the slowest in almost five years.

Yields on the dollar debt of Africa’s biggest oil producer due January 2021 slipped less than one basis point to 4.358 percent as of 1:25 p.m. in London. Nigeria’s local currency debt maturing January 2022 tumbled 29 basis points to a record low 10.51 percent, according to yesterday’s data compiled by Bloomberg.

The nation’s inflation rate fell to 9 percent in January from 12 percent in December, the lowest level since April 2008, as the effect of a year-earlier reduction in fuel subsidies dropped out of the calculation, the Abuja-based National Bureau of Statistics said yesterday. Inflation is forecast to average 9.8 percent this year, the statistics office said.

“If trend is sustained, it is quite likely that there will be sufficient headroom for policy makers to start easing policy,” Kojo Amoo-Gottfried, a London-based analyst at FM Capital Partners Ltd., wrote in a note to clients today. “This continues to bode well for the country and most likely means that yields are going to come under sustained pressure.”

Nigeria’s economy will probably expand 6.8 percent this year compared with growth of 6.6 percent in 2012, the statistics bureau said. The foreign-currency reserves of Africa’s most populous country have advanced 6 percent this year to $46.72 billion, the highest since at least 2010, according to Feb. 15 data compiled by the central bank.

“Given that oil continues to remain high, the country’s overall creditworthiness continues to improve,” said Amoo-Gottfried. “With growth expected to rise to 6.8 percent, even without easing policy, there is the possibility that the economy may end up being one of the star performers on the continent so long as political issues and oil prices remain supportive.”

The naira gained less than 0.1 percent to 157.4 a dollar. Ghana’s cedi fell a second day, weakening 0.2 percent to 1.9035 per dollar in Accra.

Before it's here, it's on the Bloomberg Terminal.