Nigeria’s Eurobonds may be nearing the limit of their outperformance against US Treasuries, but the country’s equities could still beat the S&P 500 as investors move from pricing out default risk to pricing in a longer-term growth recovery, according to Renaissance Capital Africa.
Nigerian Eurobonds have benefited from tighter credit spreads, higher oil prices and improving sovereign-credit sentiment, while US Treasury yields have climbed on concern about America’s fiscal outlook.
Yet Renaissance argues in a September 03 note to clients that Nigeria’s 2034 Eurobond, yielding about 7%, may no longer offer enough compensation against US long-dated debt if Treasury yields settle in the 5% to 6% range.
The more compelling opportunity, the firm says, is in Nigerian equities—particularly companies with foreign-currency earnings, exposure to credit growth and links to the country’s industrial expansion.
That view, according to Rennaissance, is supported by the prospect of a Dangote Petroleum Refinery listing, improving ratings momentum and the broader argument that the long-term move from developed markets into emerging and frontier markets is still in its early stages.
The Eurobond rally
Nigeria’s 2034 dollar bond yield fell from 7.40% at the start of 2026 to about 7.25% by Aug. 31, even as US 10-year yields rose to 4.75% from 4.17%. The yield spread narrowed from more than 320 basis points to around 250 basis points, a compression of almost one-third.
The narrowing spread reflects a dual repricing. Nigeria has been helped by higher oil prices, following disruption around the Strait of Hormuz, and by the perception that fiscal and exchange-rate reforms are improving its debt outlook. At the same time, markets are assigning a higher risk premium to developed-market fiscal policy, particularly in the US, where deficits remain large despite economic growth.
Renaissance notes that emerging-market spreads are at their tightest in about two decades while developed-market yields are near 20-year highs. That has inverted the traditional narrative in which frontier economies were viewed as the primary sovereign-fiscal risk.
Why Nigeria’s bond outperformance may fade
The firm’s main argument is not that Nigeria’s debt fundamentals are deteriorating. On the contrary, it sees Nigeria’s debt trajectory as improving relative to many frontier peers and believes fiscal progress, stronger growth and falling inflation can continue to support credit quality.
Nigeria’s projected 2026 public debt-to-GDP ratio of 32% compares with 126% for the US, according to the assumptions used in the research. Renaissance also expects Nigeria’s nominal economic growth—estimated at about 16% in the 2027-31 period—to exceed its blended domestic and external effective interest costs, provided the policy framework remains intact.
Still, Nigeria’s cost of servicing debt remains high. The firm notes that Nigeria’s interest burden is roughly double that of the US despite Nigeria’s debt stock being far smaller relative to GDP. Nigeria also carries meaningful foreign-currency exposure, which means naira weakness can worsen debt dynamics in a way that does not apply to the US.
That creates a ceiling for Eurobond outperformance. Renaissance argues that when US long-term yields offer 5% to 6%, investors may no longer favor a single-B rated Nigerian bond yielding roughly 7% unless the spread over US Treasuries widens again.
Why equities may be different
Renaissance’s equity view rests on the idea that Nigeria’s stock-market gains since 2024 and 2025 were initially driven by investors reducing the probability they assigned to a sovereign or macroeconomic crisis. The next stage could be valuation of Nigeria as a positive long-term growth story rather than merely a market that avoided a worse outcome.
This distinction matters. A Eurobond is capped at principal repayment plus coupons, so once the credit spread has compressed, returns become limited. Equities retain open-ended upside from earnings growth, operating leverage, asset revaluations, lower interest rates, credit expansion and new corporate listings.
“Whilst we do not discount FX risk, e.g. if falling interest rates result in portfolio investors taking profits and pulling out of Nigeria, or if oil prices fall back below $70/bbl., equities provide a useful hedge, particularly those equities with FX-earning exposure, like Dangote’s forthcoming IPO. Rising credit ratings and better credit growth also provide upside to Nigeria’s equities,” Renaissance Capital Africa said in the report.
”In conclusion, whilst we don’t think Nigeria’s Eurobonds can continue to outperform the US, we think Nigerian equities can outperform the S&P.”
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