Investors are piling into short-term Nigerian government debt, lured by high yields and a brightening outlook for the currency following the country’s successful launch of a $2.2 billion eurobond.
The Central Bank of Nigeria on Monday sold a combined 1.56 trillion naira ($990 million) of 366-day and 351-day bills on yields just shy of 24%, more than double the amount it initially planned, following a blow-out treasury bill auction last week and the eurobond offer.
Ibukunoluwa Omoyeni, economist at Lagos-based Vetiva Capital Management Ltd., said appetite was stoked by lofty yields and improved confidence in the naira, following the introduction by the CBN of a new electronic foreign-exchange matching system.
“These factors improve the carry trade, thus making investors net buyers of naira assets,” Omoyeni said.
A carry trade is any strategy where an investor borrows capital at a lower interest rate to invest in assets with potentially higher returns.
The local currency, which has been battered since its peg against the dollar was deliberately loosened last year, has appreciated around 9% since late November to 1,540 per dollar Monday, according to FMDQ data.
The CBN raised interest rates by 25 basis points on Nov. 26 to 27.5%, its sixth consecutive hike in 2024 to cool inflation near a three-decade high. But Governor Olayemi Cardoso subsequently signaled rate cuts ahead if price pressures cool as he expects.
As a result, investors could be locking in elevated rates now “before we start to see easing in second quarter 2025 as inflation starts to moderate,” said Ayodeji Dawodu, an analyst at BancTrust Investment Bank Ltd.
Africa’s largest crude producer raised $2.2 billion on Dec. 3 via its first eurobond since 2022. The offer was heavily oversubscribed, with the order book peaking at $9 billion.
The funds are expected to boost Nigeria’s foreign-exchange reserves, which have advanced to $40 billion on Nov. 28 from $33.7 billion in January, providing further support to the naira.
“Post-eurobond enthusiasm about Nigeria’s FX reserves has encouraged foreign portfolio investors to dip their toe into the local market again,” said Charles Robertson, the London-based head of macro strategy at FIM Partners.
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