The Federal Government sovereign-risk premium jumped the most in three months on Monday after Moody’s Investors Service downgraded the country deeper into junk.
The extra yield investors demand to own the West African country’s dollar debt rather than Treasuries widened 49 basis points to 780, according to JPMorgan Chase & Co. data.
The rate on the nation’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.
Longer-dated bonds were down the most, with the dollar-denominated 2051 Eurobond falling more than 2.8 cents in the dollar to 68.758 cents according to Tradeweb data .Only the Eurobond maturing this year fell less than one cent.
“That is a significant move because there will be a lot of forced selling,” Viktor Szabo, emerging market portfolio manager at Abrdn, told Reuters. “Pension funds don’t like have names that are defaulting or even close to defaulting.
As the bond prices tumbled, the premium or ‘spread’ investors demanded to hold Nigerian debt rather than ultra-safe U.S. Treasuries jumped 46 basis points to 777 basis points. Nigeria’s bonds had outperformed other African and emerging market issuers over the last six months, according to JPMorgan.
“The review for downgrade focused on Nigeria’s fiscal and external position and the capacity of the government to address the ongoing deterioration – other than by alleviating the burden of its debt through any form of default, including debt exchanges or buy-backs,” Moody’s said.
