Foreign Investors Stall Nigeria’s Bond Rally On Naira Devaluation Concerns

April 9, 2015

Nigeria’s post-election bond rally is stalling as foreign investors wait for a devaluation of the naira before buying the nation’s debt.

Yields on benchmark naira bonds due March 2024 have climbed 61 basis points in the past three days after plunging 118 basis points on April 2, the day after Muhammadu Buhari of the opposition All Progressives Congress was announced the winner in a presidential election.

He beat incumbent Goodluck Jonathan in a vote described as mostly peaceful and fair by observers including those from the European Union.

Investors including Morgan Stanley, Aberdeen Asset Management Plc and Landesbank Berlin Investment GmbH cut their local bond holdings in the last quarter of 2014 as the price of crude oil, Nigeria’s main export and source of more than two thirds of government revenue, fell by 37 percent during that period.

While naira government debt offers the highest yields among 31 developing nations tracked by Bloomberg, foreign investors have to factor in the increasing risk of a currency devaluation that will hurt returns when converted to dollars.

“Political risks have diminished but the other risks are still in place: a very low oil price and pressure on the naira,” Lutz Roehmeyer, who oversees Landesbank Berlin’s $1.1 billion emerging-markets debt portfolio, said by phone from the German capital on Tuesday.

“You can still expect a devaluation. I see a lot of local-currency investors waiting for that to happen before they re-enter Nigeria.”

The central bank devalued its target rate for the naira to 168 per dollar from 155 in November. After that failed to stabilize the currency, it scrapped the official exchange rate on Feb. 18, moving all transactions on to the interbank market.

Source: AFK Insider

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