Africa Debt: Nigerian bonds seen rising next week

Nigerian bond yields are expected to rise next week as concern about falling global oil prices and a weakening currency persists.

Offshore investors have been cutting back on their local debt holdings since last month, putting the local currency under pressure and sending bond yields higher.

Traders said yields has gone up by around 30 basis points since last week as more investors dumped the local debt and repatriated their funds back to their home countries.

At the primary auction this week, the debt management office (DMO) sold about 83.94 billion naira($509.62 million) in bonds of maturities between 3 and 20 years. It offered higher yields to attract foreign investors unnerved by falling oil prices and a weakening naira.

“With the prevailing market sentiment, yields will continue to rise in the near term. More investors are cautious at this point because of the falling oil price, which has implications on the local economy,” said one dealer.

Yield on the benchmark 2024 bond rose to 12.81 percent on Friday, compared with 12.59 percent last week, while 2022 paper was trading around 12.88 percent against 12.60 percent last Friday.

The local currency has fallen more than 3.65 percent year-to-date as pressure on the naira persisted.

Kenya

A 12-year Kenyan infrastructure bond set for auction next week is expected to see strong demand, driven by foreign investors attracted by the tax break the bond offers as an incentive.

The central bank is scheduled to sell the local-currency bond on Oct. 22 to raise 15 billion shillings ($169 million) to fund selected infrastructure projects.

Unlike ordinary Treasury bonds, infrastructure bonds are exempted from withholding tax, an incentive aimed at encouraging investors.

“We expect big, big demand because of the tax advantage,” said John Njenga, a fixed-income trader at Commercial Bank of Africa, adding the subscription rate could be 250 percent.

The impact of the expected demand has already been felt in the foreign exchange market, where the Kenyan shilling has strengthened as dollars flow in from offshore investors seeking to buy the bond.

Njenga said he expected the yield on the bond to be 11.25-11.75 percent, down from 12.34 percent when the government last issued an infrastructure bond, in September last year.

The central bank will also sell Treasury bills of all tenures worth 12 billion shillings in two separate auctions next week.

 Reuters