Nigerian bonds are currently experiencing significant gains in emerging markets as investors express optimism about the potential reforms promised by Bola Tinubu, the ruling-party candidate who is leading in the presidential election tally. According to a report by Bloomberg Africa, local news outlets had not yet covered the positive effects of Tinubu’s early lead on the foreign exchange market as of Monday night. However, five of Nigeria’s dollar bonds ranked among the top ten performers in a Bloomberg index that includes 71 emerging and frontier nations. The report noted that the country’s sovereign risk premium narrowed the most this year on Monday, based on data from JPMorgan Chase & Co., while the equity benchmark in Lagos reached an eight-month high.
As counting continues following the February 25 presidential election, early trends indicate that Tinubu has secured victories in three key states. Money managers are hopeful that the next leader will make the tough decisions necessary to enhance government revenue, stabilize the currency, and reduce debt. Simon Quijano-Evans, the chief economist at Gemcorp Capital Management in London, remarked that markets appear to be increasingly pricing in a Tinubu victory, as he is expected to implement reforms more swiftly than his competitors. However, he cautioned that this positive sentiment may not persist if the election winner fails to promptly address macroeconomic issues through visible reforms and personnel changes.
Some of the recent gains in Nigeria’s bonds may also be attributed to bargain hunters, following a decline in bond prices leading up to the elections. Notably, Nigeria’s bond due in 2047 rose by 1.8 cents on the dollar to 68.8, reducing its yield by 33 basis points to 11.5%. Additionally, securities maturing in 2029, 2030, 2032, and 2033 all saw price increases of over 2%. The NGX 50 Index has risen for four consecutive days, reaching its highest level since June 2022, with Stanbic IBTC Holdings Plc contributing to more than half of the gains. Meanwhile, a JPMorgan gauge of sovereign risk premium narrowed by 42 basis points to 723, marking a reduction of 104 basis points in just three days. This measure had previously remained above the 1,000 basis-point mark until November 3, which is widely regarded as the threshold indicating a debt-distressed nation.
Despite Tinubu’s victories in Ekiti, Ondo, and Kwara states, the final election results remain uncertain. Atiku Abubakar of the main opposition Peoples Democratic Party narrowly won a majority in Osun state, while Peter Obi of the Labour Party garnered significant support in Lagos state. Patrick Curran, a senior economist at Tellimer Ltd., noted that although Tinubu is perceived as the least market-friendly of the three main candidates, he is currently in a favorable position. However, he emphasized that it is still early in the process, and the positive response in Nigerian credit markets could suggest that investors believe Obi still has a viable chance. Regardless of the election outcome, there is likely to be a marginal positive shift in macroeconomic policy.
Bloomberg Africa further highlighted that under the outgoing President, Major General Muhammadu Buhari (retd.), Nigeria’s total debt stock has surged more than six-fold to approximately N44 trillion. The World Bank has urged the next president to swiftly implement reforms that were neglected during Buhari’s administration, including dismantling the multiple exchange-rate regime that deters investors, removing import restrictions, and eliminating fuel subsidies that consume a significant portion of the nation’s crude oil revenues. Charlie Robertson, the global chief economist at Renaissance Capital in London, warned that default remains a risk. He noted that by Wednesday, attention would shift to the challenges facing the next administration, which are expected to be formidable unless oil prices yield unexpected benefits in the coming years, as the interest bill as a percentage of federal revenues is currently very high.
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