Will The $2.5bn Eurobond Drive Yield Curve Normalization?

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Nigeria recently sold $2.5bn worth of Eurobond via a dual series offering of 12-year and 20-year tenors, priced at 7.143% and 7.696% respectively. This brings Nigeria’s Eurobond portfolio to $8.5bn (or $8.8bn if the $300m diaspora bond is included), and her total external borrowing to $20.9bn, narrowing the NGN-USD debt mix to 66:34 (compared to 73:27 in Sept-2017). This indicates that the FGN is one step closer to its fiscal desire to adjust the debt mix to 60:40 by
2019.

By implication, this development should translate to lower local currency debt issuances going forward, the Q2-2018 NTB calendar would make this more apparent. Accordingly, we expect this to trigger a yield curve normalization, given that short-term interest rates would come under pressure considering the softer paper supply.

However, the CBN may likely resort to further OMO issuances, to check system liquidity and bridge the supply gap. In addition, we expect the DMO to approach its monthly bond auctions with more cost sensitivity, given that proceeds from the Eurobond sale would be used to the re-finance short-term domestic debt, stoking lower borrowing costs amid faster moderation in headline inflation rate.

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