High Eurobond yield, US rates continue to drive Nigeria’s debt burden

Nigeria’s debt may continue to remain unsustainable with the rise in Eurobond Yield and increasing United States interest rates with the bond expected to mature in five years time.

For instance, Nigeria’s Eurobond Yield with a maturity of 2022 closed trading last weekend at a yield of 10.6 per cent up from 8.9 per cent at the end of April 2022. The bond is expected to mature in five years.

It was also trading for 6.424 per cent at the end of December 2021 and opened the year at about 6.384per cent.

The Eurobond has a total face value of $1.5 billion and was borrowed at a coupon of about 6.5 per cent when it was initially issued.

Bond yields have risen in the last few weeks driven by the increase in US Interest rates by the US Federal Reserves. The US Fed commenced rate hikes in response to the record-high inflation rate experienced in the world’s largest economy. The US Inflation rate stood at 8.3 per cent in April.

But back home, it is often celebrated that Nigeria’s Eurobond Yield is often oversubscribed. But analysts warned that, investors knowing the gains ahead is mouth-watering continue to invest, while ATP-siding direct investments that have risk attached.

A hike in US interest rates is targeted at curbing inflation in the world’s largest economy which is achieved when the rate hikes lead to a rise in borrowing costs.

The rise in borrowing costs means people borrow less thus reducing the amount of cash in circulation in the US Economy.

Unfortunately, these rate hikes negatively affect emerging markets like Nigeria as it also means the cost of borrowing will be expected to rise.

The rise in Nigeria’s Eurobond yield occurs when investors sell Nigerian Eurobonds forcing prices to plummet. Bond yields are inversely proportional to bond prices.

The 2027 Eurobond closed with a price of $82.596 7 compared to $99.972 in January. A Nigerian Eurobond has a face value of $100 per unit.

The drop is experienced across all the Eurobond tracked from the website of the Debt Management Office of Nigeria.