Nigeria Bond Yields Rise on CBN’s Rate Increase

Nigeria’s three and four-year borrowing costs rose at a bond auction today in the first sale since the central bank increased its benchmark interest rate.

Sub-Saharan Africa’s second-biggest economy sold 70 billion naira ($455.4 million) of bonds maturing in 2014, 2015 and 2018, the Abuja-based Debt Management Office said on its website today. It sold 30 billion naira of 10.5 percent notes due 2014, with the yield climbing 50 basis points, or 0.5 percentage point, to 10.75 percent compared with the July 20 sale. Investors bid for 1.5 times the amount on offer.

The central bank raised its benchmark rate to 8.75 percent last month, the fourth increase this year, to rein in inflation. Price growth in the West African country decelerated to 9.4 percent in July, the lowest level in more than three years, the National Bureau of Statistics said Aug. 16.

“The bonds were expected at a higher yield because of the increase in the benchmark interest rate,” Wale Abe, chief executive officer of the Financial Market Dealers Association, an interbank clearing house for Nigerian banks, said by phone. Higher demand due to the inflow of funds from allocations to the government and the decline in the inflation rate “ensured good subscription,” he said.

Nigeria’s federal, state and local governments shared 616.25 billion naira of revenue in July, the accountant general, Jonah Otunla, said on Aug. 12.

The agency also sold 15 billion naira of 4 percent notes due 2015 at a yield of 11.19 percent, compared with 10.7 percent at the July auction. Investors bid for 2.9 times the amount on offer.

The yield on 10.7 percent debt due 2018 fell to 11.39 percent from 11.49 percent last month, with the agency allocating 25 billion naira of the bonds, with investors bidding for 1.7 times the amount on offer.

The agency also allocated 23 billion naira of 2014 debt on a non-competitive basis at 10.75 percent, it said.

Bloomberg