Nigeria: Treasury Instruments Crash On Moody's Downgrade

9 November 2017

Lagos — Amidst disagreement between Federal Government and Moody's Investment Services, a global financial rating agency, over the later's downgrade of Nigeria, the country's bond and treasury instruments crashed yesterday, at the short end of the tenors.

The 30-Day and 90-Day Nigerian Interbank Offered Rate, NIBOR, decreased to 19.94% and 21.21% respectively, though the 180-Day NIBOR increased to 23.04%

The discount rates on the Nigerian Treasury Bills (NTBs) depreciated significantly also by an average of about 50 basis points in the 2-way-quote market, though market activity was very high and trading was across all bills on the curve The investment banker, FSDH Merchant Bank Limited, in a release last night, stated: "Prices dipped across all the maturities traded today in the 2-way quote Bond Market, as the market reacted to Moody's downgrade of Nigeria's sovereign issuer rating from B1 to B2.

"The high yields seen following the sell-off generated interest from the PFAs (Pension Funds Administrators) although prices ultimately closed lower than opening level"

The Federal Government has disagreed with the latest Moody's downgrade of Nigeria from a B1 stable to B2, saying it does not reflect the positive trend in the economy.

Moody's Investor Service two days ago announced the downgrade of the federal government's long-term issuer credit rating, thus reversing the rating assigned by them to the Nigerian government in December 2016.

Issuer credit rating is a forward-looking evaluation about an obligor's overall credit worthiness.

The downgrade by the international rating agency indicates that the government is now less likely to meet its domestic and foreign financial commitments.

FG kicks

But in a joint statement by the Ministry of Finance, Central Bank of Nigeria and Debt Management Office yesterday the Federal Government stated: "Since Nigeria was last rated by Moody's (as B1 stable) in December 2016, Nigeria has successfully emerged from a protracted recession and recorded important improvements across a broad range of indices."

The statement stressed that the Nigerian economy has witnessed a growth of 0.55% in Q2 of 2017, as well as returning business confidence as evidenced by a PMI index of 55.0%.

Other indicators include; a stable foreign exchange window, with improving liquidity and convergence of parallel and official rates.

Reeling out positive developments to counter Moody's rating the government further stated: "Significantly improved foreign exchange reserves, now totalling $34 billion. Increased oil production, combined with stable and now improving oil prices. A slowly improving revenue profile, with non-oil revenue (principally taxes) up 10%, month-on-month improvements in inflation levels since January 2017, with inflation continuing to trend downwards.

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