Investors are flocking to short-term Nigerian government debt, attracted by high yields and renewed confidence in the naira following Nigeria's successful issuance of a $2.2 billion eurobond.
On Monday, the Central Bank of Nigeria (CBN) auctioned N1.56 trillion ($990 million) in 365-day and 351-day bills, offering yields close to 24%. This is more than double the initially planned amount, following strong demand in a prior treasury bill auction and the eurobond sale.
Ibukunoluwa Omoyeni, an economist at Vetiva Capital Management Ltd., attributed the surge in demand to attractive yields and improved confidence in the naira, buoyed by the CBN's new electronic foreign-exchange matching system.
"These factors improve the carry trade, making investors net buyers of naira assets," Omoyeni noted.
The naira, which faced depreciation after its peg to the dollar was eased last year, has appreciated by around 9% since late November to 1,540 per dollar as of Monday, according to Bloomberg data.
The CBN raised interest rates by 25 basis points to 27.5% on Nov. 26--its sixth consecutive hike in 2024--to combat inflation, which remains near a 30-year high. However, Governor Olayemi Cardoso has hinted at possible rate cuts in 2025 if inflationary pressures subside.
"Investors could be locking in elevated rates now before easing begins in the second quarter of 2025 as inflation moderates," said Ayodeji Dawodu, an analyst at BancTrust Investment Bank Ltd.
Nigeria's $2.2 billion eurobond sale on Dec. 3 marked its first such issuance since 2022 and was heavily oversubscribed, with an order book peaking at $9 billion.
The proceeds are expected to bolster the country's foreign-exchange reserves, which rose from $33.7 billion in January to $40 billion as of Nov. 28. This development has further stabilized the naira and drawn foreign portfolio investors back into the local market.
"Post-eurobond enthusiasm about Nigeria's FX reserves has encouraged foreign portfolio investors to re-enter the local market," noted Charles Robertson, head of macro strategy at FIM Partners.
With robust demand for debt instruments and improving macroeconomic indicators, Nigeria's financial markets are showing signs of recovery and resilience.
