Market News

Following Moody’s downgrade of Nigeria’s long-term foreign debt rating to Caa1 from B3 with a stable outlook, last Friday, the country’s longterm debt instrument was dumped at its fastest pace in three months on Monday, according to Bloomberg. The news agency said the extra yield investors demand to hold Nigeria’s dollar debt instead of treasuries widened 49 basis points to 780. The rate on Nigeria’s 2032 bonds jumped 56 basis points to 12 per cent, also the most since October. Forward contracts on the currency traded 28 per cent weaker than the official rate on the one-year tenor.

The latest moves threaten to send Nigeria’s credit spreads down to distressed territory, widely described as 1,000 basis points above Treasury yields — as the country battles slow growth, fiscal strain and a dollar squeeze. Kaan Nazli, a senior economist and money manager at Neuberger Berman Asset Management said: “Nigeria faces significant structural challenges and we do not take it as a given that the mild improvements following the elections will be sufficient to counter them. There would also be the concern of a spillover into the broader region given it is one of the largest sub- Saharan economies alongside South Africa.

“The nation isn’t a debtdefault candidate in the near term, but that risk could increase the next year if fiscal consolidation doesn’t occur.” The sovereign spread had traded above 1,000 basis points until early November, when expectations for China’s reopening boosted Nigeria’s bonds, pulling them out of the distressed territory.