Nigerian bonds halted a three-day rally as investors waited to see an uncontested result and the formation of a stable government able to implement much-needed economic reforms.
The country’s dollar bond due January 2031 was little changed, while securities maturing in 2047 and 2051 drifted marginally lower, data compiled by Bloomberg showed. Its sovereign-risk premium widened 15 basis points, trimming a 95 basis-point reduction in the past three days, according to a JPMorgan Chase & Co. index.
Early results from Nigeria’s Feb. 25 elections placed the ruling-party candidate Bola Tinubu ahead, with two-thirds of the counting still awaited. Though Tinubu wasn’t the market favorite before the vote, bondholders are now wagering his government will end the policy errors of the outgoing administration of Muhammadu Buhari. They see greater prospects of measures required to end a debt-repayment burden and avoid a potential default.
“All three leading candidates would eventually do what is right for Nigeria’s economy in allowing the naira to devalue and review the oil subsidies,” said Anders Faergemann, a senior money manager at Pinebridge Investments Europe Ltd. in London. “Most of the good news has been priced in for the near term, yet Nigeria does offer attractive yields on a medium-term basis.”
The risk premium on Nigeria’s sovereign bonds may tighten further in the wake of the election result, rising oil production, and tentative signs of growth acceleration, he said. The spread traded at 748 basis points on Tuesday, compared with more than 1,000 basis points — widely considered the threshold of debt distress — in early November, according to JPMorgan data.
Tinubu of the All Progressives Congress has so far won seven states, compared with four for Atiku Abubakar of the main opposition Peoples Democratic Party, according to results released Tuesday by the Independent National Electoral Commission.
Peter Obi of the Labour Party, markets’ pre-election favorite, secured the most support in Lagos and two other states, while the opposition New Nigeria Peoples Party won in the northern state of Kano. To prevail, a candidate must get the majority of votes and more than 25% of ballots in at least 24 of Nigeria’s 36 states and the federal capital territory of Abuja.
The 2031 bond was steady at 83.85 cents on the dollar as of 11:23 a.m. London time. The 2047 security was 0.3 cent lower at 68.28, and the 2051 note slipped 0.7 cent to 70.90.
“Given the strength of the rally, I’d consider today’s decline a small blip,” said Richard Segal, a fixed-income analyst at Ambrosia Capital Ltd. “The near-term outlook is choppy but trend-less. Longer term, I’m more encouraged by the end of policy drift, given my base case of a clear election outcome.”
Under Buhari, Nigeria’s total debt stock increased to about 44 trillion naira. The World Bank has said the next president should quickly implement reforms that Buhari neglected to enact, including quashing a multiple exchange-rate regime that is repelling investors, removing import restrictions and lifting fuel subsidies that cost most of what the country makes pumping crude.
The country’s debt-servicing is under strain as interest payments threaten to exceed government revenues.
“We still like the Nigeria bonds although there may have been some profit-taking,” said Samantha Singh, a senior strategist at Rand Merchant Bank. “The quicker the transition the better. Although the handover date is set for May, it means more time to reflect on policy and changes potentially needed.”
