Nigeria faces higher external borrowing costs on Trump victory
Feature Highlight
Yields on Nigeria’s $500 million bond and Kenya’s $2 billion bond have surged 160 and 170 basis points, respectively, since Trump’s victory.
The emerging markets bond selloff triggered by the surprise win of Donald Trump in the United States elections last week has caused the yields on Nigerian bonds to rise, a development that will make the Nigerian government’s external borrowing programme more expensive. According to data released by Bloomberg on Tuesday, the yield on Nigeria’s $500 million bond maturing in July 2023 has increased by 160 basis points to 8.47 per cent since Trump’s election victory.
The rate of return on the securities is the highest since February 2016, when oil prices plummeted to below $27 per barrel, causing Nigerian bond yields to soar.
President-elect Trump has promised increased infrastructure spending, tax cuts, among other measures to boost the U.S. economy. His tone in the wake of his election victory has reduced downside risk in the U.S. economy, creating a shift toward higher growth and inflation expectations. As inflation expectations rise, investors are demanding higher premium. U.S. 10-year Treasury yields have since risen from 1.7215 per cent on November 9, reaching 2.30 per cent on Monday, before settling at 2.224 per cent – its highest level in a year.
Investors also expect the Federal Reserve to raise interest rates at a faster pace, if the Trump administration carries out is stimulus programme. The rising U.S. bond yields and a more attractive dollar have caused the emerging market bonds selloff.
The Nigerian government's plan to tap the Eurobond market before the end of the year comes at a time of rising bond yields, resulting in much higher costs to raise external funding for government projects. In August, the Debt Management Office announced the government’s plan to issue a $1 billion Eurobond this year, becoming the first time the country will raise funds from the international financial markets since July 2013.
The current conditions in the international debt capital market may also not be favourable to President Muhammadu Buhari's overall $29.96 billion three-year external borrowing proposal, which has faced negative reactions from the National Assembly. The borrowing plan is for the period of 2016 to 2018 and is targeted at executing key infrastructural projects across the country.
As EM currencies fall, their equity markets have also fallen. The benchmark stock index of the Nigerian Stock Exchange dropped 1.92 per cent in the week between November 8 and November 15. On a year-to-date, the index has fallen by 9.72 per cent.
Apart from the impact on Nigerian securities, Bloomberg also reported that the yield on Kenya’s $2 billion bond due in June 2024 has surged 170 basis points to 8.54 per cent since the result of the U.S. 2016 elections was announced.
Martins Hile is Executive Editor, Financial Nigeria
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