Juicy yield sees Nigeria’s bond oversubscribed by over 300%
Investors eagerly seized the opportunity presented by the reopening of Nigeria's longest-dated bond during Monday's auction, resulting in over three times oversubscription. The 2053-dated debt garnered total subscriptions amounting to N330 billion ($364 million), surpassing the N90 billion offered by the nation's Debt Management Office (DMO).
In contrast, shorter tenor notes, such as the 2029, 2033, and 2038 maturities, experienced undersubscription at the same auction, indicating a clear preference for the longer-dated debt. The 30-year bond, which also boasted a record yield of 18%, witnessed heightened demand.
The subscription trends reflect investor confidence in the potential of the long-dated instruments to yield significant returns over inflation in the long term. Notably, this robust response comes amidst expectations of a 27.7% annual inflation rate in October, as projected by economists surveyed by Bloomberg.
Key Takeaways
The unprecedented yield on the 2053 bond occurs amidst a broader context where investors are urging the central bank to increase interest rates, aiming to bring them closer to positive territory when adjusted for inflation. Analysts caution that Nigeria's negative real yields act as a deterrent for foreign investors. This concern persists even as the government endeavors to attract capital by easing exchange controls and implementing other economic reforms. The challenge lies in striking a balance between addressing investors' calls for higher yields and fostering an environment conducive to foreign investment amid ongoing economic reforms. Meanwhile, pension funds, being the predominant investor group in the country with the highest AUM, are designed to fulfill long-term obligations. Consequently, when presented with a long-term asset offering an 18% yield, surpassing long-term inflation by 500-600 basis points, these funds are inclined to heavily invest.
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