Market News

Barclays has advised investors to move away from Nigeria’s longer-term dollar bonds and consider shorter-dated issues instead, citing more favourable yields in the mid-section of the curve and relative value compared to other emerging markets.

According to Bloomberg, analysts led by Andreas Kolbe said they remain overweight on Nigeria’s hard-currency bonds but noted that the country’s yield curve has not steepened in line with trends observed in other emerging markets, where short-term securities have outperformed longer maturities.

Kolbe explained that this divergence presents an opportunity for investors. “We hence think value has shifted away from the long end and into the 8- to 10-year belly of the curve,” he said, suggesting clients consider switching from the 2049 maturity to the 2033 bonds.

The analysis pointed to the Z-spread — a metric that adjusts for volatility in yield differentials — between the two bond maturities. Kolbe noted that the spread has flattened by about 25 basis points this year, which, in his view, makes it “too flat relative to the front-end,” especially when compared with other high-yielding emerging-market debt.

Barclays also highlighted the potential benefits of the rolldown strategy, where investors can profit from rising bond prices as they move closer to maturity. “Given the steepness of Nigeria’s curve, the trade should also benefit from attractive rolldown,” Kolbe added.

Currently, Nigeria’s 2049 bond is trading at a yield of about 10.8 per cent, while the 2033 issue is yielding 10.4 per cent. Both have seen yields decline by over 100 basis points since early April, a period during which broader emerging-market assets rebounded following an easing of global trade tensions.

Nigeria’s average yield premium over US Treasuries now stands at 571 basis points, down approximately 350 basis points from May 2023. The decline follows a series of market-oriented reforms introduced after President Bola Tinubu assumed office. This week, Tinubu received backing from the ruling party as its candidate for the 2027 presidential election.

Meanwhile, financial markets worldwide have shown signs of stress following renewed trade tension sparked by US President Donald Trump’s threats of new tariffs on the European Union and global tech companies. Trump has proposed a 50 per cent tax on all EU imports into the US, including luxury goods and pharmaceuticals, and a 25 per cent tariff on smartphones not manufactured within the country.

The announcement triggered a sell-off in global equities. The S&P 500, Nasdaq, and Dow Jones all declined, while the Euro STOXX 600 fell nearly 2 per cent before recovering slightly. Automakers and luxury firms in Germany and France posted some of the steepest losses.

The Nigerian Exchange (NGX) was not immune. Market capitalisation fell by N201 billion this week, with the All-Share Index closing at 109,028.62 points, down 0.62 per cent week-on-week. Analysts at Cordros Research attributed the downturn to investor reactions to the Central Bank of Nigeria’s decision to retain the Monetary Policy Rate at 27.5 per cent and a broader rotation toward fixed-income assets.

Despite market uncertainties, Barclays’ positioning on Nigeria’s shorter-term bonds suggests a continuing appetite for exposure to the country’s debt, but with a sharper focus on duration and relative value within the emerging-market space.