Nigerian bonds dropped for the first time in four days as a boycott of vote-counting by opposition parties jeopardized the uncontested result that markets want to see.
(Bloomberg) — Nigerian bonds dropped for the first time in four days as a boycott of vote-counting by opposition parties jeopardized the uncontested result that markets want to see.
The country’s dollar bond due 2051 slid 1.7 cents to 69.88 on the US dollar, while securities maturing in 2047 and 2031 dropped less than one cent each, data compiled by Bloomberg showed. Its sovereign-risk premium widened 16 basis points, according to a JPMorgan Chase & Co. index. Investors worried the latest developments may delay the formation of a stable government that can carry out fiscal reforms needed to ease a crippling debt burden and stabilize the currency.
Three Nigerian opposition parties said they will boycott the process to collate votes from the Feb. 25 elections, alleging “monumental disparities” between the official results and the data available to their polling agents. Early results placed the ruling-party candidate Bola Tinubu ahead. Whoever eventually wins, bondholders are now wagering the new government will end the policy errors of the outgoing administration of Muhammadu Buhari. But they see an undisputed result as the vital start.
“All three leading candidates would eventually do what is right for Nigeria’s economy in allowing the naira to devalue and review the oil subsidies,” said Anders Faergemann, a senior money manager at Pinebridge Investments Europe Ltd. in London. “Most of the good news has been priced in for the near term, yet Nigeria does offer attractive yields on a medium-term basis.”
The risk premium on Nigeria’s sovereign bonds, which shrank 95 basis points in the past three days, may tighten further in the wake of an undisputed election result, rising oil production, and tentative signs of growth acceleration, he said. The spread traded at 749 basis points on Tuesday, compared with more than 1,000 basis points — widely considered the threshold of debt distress — in early November, according to JPMorgan data.
Tinubu of the All Progressives Congress has so far won seven states, compared with four for Atiku Abubakar of the main opposition Peoples Democratic Party, according to results released Tuesday by the Independent National Electoral Commission.
Peter Obi of the Labour Party, markets’ pre-election favorite, secured the most support in Lagos and two other states, while the opposition New Nigeria Peoples Party won in the northern state of Kano. To prevail, a candidate must get the majority of votes and more than 25% of ballots in at least 24 of Nigeria’s 36 states and the federal capital territory of Abuja.
“Given the strength of the rally, I’d consider today’s decline a small blip,” said Richard Segal, a fixed-income analyst at Ambrosia Capital Ltd. “The near-term outlook is choppy but trend-less. Longer term, I’m more encouraged by the end of policy drift, given my base case of a clear election outcome.”
Under Buhari, Nigeria’s total debt stock increased to about 44 trillion naira. The World Bank has said the next president should quickly implement reforms that Buhari neglected to enact, including quashing a multiple exchange-rate regime that is repelling investors, removing import restrictions and lifting fuel subsidies that cost most of what the country makes pumping crude.
The country’s debt-servicing is under strain as interest payments threaten to exceed government revenues.
“We still like the Nigeria bonds although there may have been some profit-taking,” said Samantha Singh, a senior strategist at Rand Merchant Bank. “The quicker the transition the better. Although the handover date is set for May, it means more time to reflect on policy and changes potentially needed.”
(Updates bond prices throughout)
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