Foreign portfolio investors have reduced their holdings in Nigeria’s Eurobonds, causing yields to rise due to bearish sentiments amidst disappointing economic indicators. The CBN maintained the MPR to ensure market stability as external pressures, including U.S. economic challenges and falling oil prices, influence investor behavior. Analysts foresee continued negative sentiment unless favorable developments occur.
Foreign portfolio investors (FPIs) have reduced their holdings in Nigeria’s sovereign Eurobonds, reflecting a risk-off sentiment amid changing market dynamics. Investor sentiment has turned pessimistic as portfolio managers reassess developments in Nigeria relative to global economic conditions.
In February, the Central Bank of Nigeria (CBN) opted to maintain the Monetary Policy Rate (MPR) and other key measures unchanged. This decision signals a cautious approach as the CBN evaluates the impacts of previous rate hikes on economic performance to avoid destabilizing the market.
Despite previous optimism, the U.S. economy is facing challenges, exacerbated by the protectionist policies of President Donald Trump, which have invoked concerns over economic stability. On Wednesday, investors engaged in profit-taking in the Eurobond market as part of their strategy to manage portfolio risk under volatile conditions.
The Eurobond market initially rallied, buoyed by optimism regarding potential tariff concessions under Trump’s administration, yet sentiment quickly soured due to declining oil prices and disappointing job growth data. ADP reported a mere 77,000 jobs were added in February, significantly below expectations and earlier figures.
As a consequence, the average mid-yield on Nigerian Eurobonds rose by 5 basis points to 9.02%, with the short end of the curve most affected. Analysts predict that negative sentiment is likely to persist unless there are positive developments either internationally or locally.
February saw significant activity in the global fixed-income market due to monetary policy shifts, geopolitical uncertainties, and concerns regarding economic growth, as indicated by CardinalStone Partners Limited. The firm noted that bond yields fell across many economies, closely mirroring movements in U.S. Treasury bonds, with the 10-year Treasury yield declining to 4.2%, the lowest since December 2024.
While previous market sentiments were dominated by inflation concerns stemming from Trump’s tariffs, there was a noticeable shift in February as weakening economic indicators prompted investors to reassess risks and gradually de-risk their portfolios. The ISM manufacturing survey indicated an unexpected contraction, suggesting possible economic slowing.
In conclusion, Nigeria’s Eurobond yields have risen as FPIs adjust their asset holdings in response to evolving economic conditions. The CBN’s decision to maintain interest rates reflects a strategy aimed at economic stability. Overall, external market tensions, disappointing U.S. job data, and a decrease in oil prices are contributing to a bearish investor sentiment, warranting close monitoring for any shifts that could positively impact market conditions.
Original Source: dmarketforces.com
