Nigerian bonds steadied as investors looked to newly elected President Bola Tinubu to act quickly to improve the finances of Africa’s most populous country and reverse eight years of economic decline under his predecessor Muhammadu Buhari.
The country’s longest-maturity dollar bonds, notes maturing in 2051, rose 0.1% of as of 12 p.m. in London on Wednesday, bringing the yield to 12.1%. The premium investors demand to hold Nigerian debt over US Treasuries rose 2 basis points to 769, down from an average of 812 so far this year, according to JPMorgan indexes.
Credit markets also signaled an easing of investor concerns. The cost to insure against a default by the government for the next five years has dropped more than 60 basis points over the past four sessions, falling to 676 on Wednesday, the lowest since Feb. 1.
But the newly elected president, a former governor of Lagos, doesn’t have much time to deal with the country’s deepening economic problems.
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A fiscal crisis fueled by a costly and unsustainable gasoline subsidy, which is projected to drain 6 trillion naira ($13 billion) from state finances this year, is on the top of the agenda. Investors also want to see the president move to unify Nigeria’s multiple exchange rates.
Relative Value
“There is still significant relative value in Nigeria dollar bonds versus peers,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank in London. “If the market senses that faster progress on subsidy and FX reforms is likely to be made, there could be room for more material Nigeria eurobond outperformance this year.”
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Tinubu won 35.2% of the votes cast on February 25, and was declared winner on Wednesday. The vote count was marred by glitches and delays in collating results, which prompted two main opposition parties to boycott that process.
“The change of government is a sigh of relief given the potential for policy reforms,” Abdulazeez Kuranga, an analyst at Lagos-based Cordros Capital Ltd. in Lagos, said by phone. He said a prolonged market rally would be dependent on avoiding post-election violence and on Tinubu’s choice of cabinet members.
“Tinubu is seen as a pragmatic and experienced manager, which also gives confidence given Nigeria’s challenges,” said Kaan Nazli, senior economist and portfolio nanager at Neuberger Berman Asset Management in The Hague. “From here on, we would like to see progress in key areas, particularly gasoline subsidies and the exchange rate, for the bonds to sustain the relative recovery in last few days.”
