Government’s Easing of Restrictions Cuts Bond Yields

Nigeria’s borrowing costs are set to plunge in its first bond auction since dropping requirements for investors to hold government debt for at least a year.

Africa’s biggest oil producer will offer 70 billion naira ($460 million) of bonds today including notes due 2015. Yields on the four-year debt tumbled 191 basis points, or 1.91 percentage points, to a six-month low of 10.70 percent since central bank Governor Lamido Sanusi announced the lifting of bondholder restrictions on June 23, according to data from the Financial Markets Dealers Association website to yesterday.

Sanusi is opening Nigeria’s debt markets to attract more capital and prevent a weakening of the West African nation’s currency pushing up inflation and damaging economic growth, he said in March. The naira has strengthened 2.8 percent since Sanusi’s announcement to 152.125 per dollar, as of 9:44 a.m. in Lagos, according to data compiled by Bloomberg.

“The result has been a substantial rally in government bonds, driven in the first instance by the expectation of greater foreign inflows, and then by actual foreign inflows,” CSL Stockbroker Ltd. analysts, including Alan Cameron in London, wrote in a report before the auction.

The stronger currency is helping to curb the cost of imported food and slow inflation to 10.2 percent in June from 12.4 percent in May. The central bank’s target is below 10 percent, with policy makers increasing the benchmark interest rate three times this year to 8 percent to stem price rises.

Nigeria plans to sell more “longer-tenured” bonds in the fourth quarter after today’s auction, Abraham Nwankwo, director general of the Debt Management Office, said by phone July 17.

The sale will include as much as 25 billion naira of 10.7 bonds due 2018. The longer term bonds will help boost liquidity on the market, said Nwankwo. Nigeria issues sovereign bonds once a month.

Bloomberg