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FGN Bond Yields Drop on Ratings Upgrade

09 Nov 2012

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Dr. Mrs  Ngozi Okonjo Iweala



Yields on Nigeria's 10-year bond were down 38 basis points at the opening of trading Thursday compared with its position before Standard & Poor's (S&P) and Moody’s lifted the country's credit rating on Wednesday.

Reuters said the 10-year note, which was trading at 13.98 per cent before the ratings announcement, opened for trade on Thursday at 13.60 per cent, while yields on other maturities fell between 10-20 basis points.

The fall in yields was also helped by Barclays' announcement this week that it will add Nigeria to its emerging market local currency government bond index from March next year, aiding a drop in yields, traders said.

The 3-year and 7-year notes have shed 12 basis points since the ratings announcement to trade at 12.38 percent and 12.42 percent respectively.

"Yields will continue to fall given the effects of the S&P ratings, Barclays and JP Morgan bond index inclusions and positive economic indicators, making local and foreign investors comfortable with Nigeria risk assets," a Lagos-based dealer at Standard Chartered Bank, told Reuters.

On Wednesday, global ratings agency S&P raised Nigeria's long-term foreign and local currency credit rating to BB-, three notches below investment grade, from B+, citing higher foreign exchange reserves and government reform efforts.
This coincided with an upgrade by another global credit ratings agency, Moody's which assigned local and foreign currency issuer ratings of Ba3 to Nigeria due to the country’s stable outlook.

Barclays said in a report on Monday that 11 of Nigeria's government bonds had a market value of $13.9 billion, higher than its minimum requirement of $5 billion in eligible debt outstanding to qualify for index inclusion.

It said Nigeria will make up 0.5 percent of the index.
Nigeria's 10- and 20- year bond yields shed 300 basis points in a month in October as markets prepared for its inclusion in JP Morgan's emerging markets index, meant to attract inflows of up to $1 billion into the debt market.

Tags: Business, Nigeria, Featured, FGN, Upgrade

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