Post Election Bond Rally Stalls on Naira Concern
Obinna Chima with agency report
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.
Investors including Morgan Stanley, Aberdeen Asset Management Plc and Landesbank Berlin Investment had 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 the period.
“Political risks have diminished but the other risks are still in place: a very low oil price and pressure on the naira,” Bloomberg quoted Lutz Roehmeyer, who oversees Landesbank Berlin’s $1.1 billion emerging-markets debt portfolio to have said.
“You can still expect a devaluation. I see a lot of local-currency investors waiting for that to happen before they re-enter Nigeria.”
Buhari, 72, a former military ruler who lost three previous election bids, will be sworn in on May 29. Nigerian assets soared after Jonathan conceded defeat on March 31, easing investors’ concerns of a disputed result in a country marred by a history of election-related violence.
Nigeria’s average government bond yields fell 81 basis points to 14.47 percent on April 1, the lowest since December 12. Most of the demand came from domestic investors, who don’t have to take the naira’s exchange rate into account, according to head of research at London-based Ashmore Group Plc, which manages $64 billion of emerging market debt,Jan Dehn.
While the central bank’s measures have helped steady the exchange rate, they have reduced liquidity and left the naira overvalued, according to a money-manager who helps oversee $12 billion of developing-nation debt at Aberdeen, Viktor Szabo,which firm hasn’t resumed buying naira debt.
“The currency hasn’t adjusted sufficiently,” Szabo said.
“It’s the turn of the central bank to act. If the move is sufficient –- we’re probably talking to above 220 a dollar –- we’d be inclined to get involved with the local bonds.”