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Nigerian Bonds Drop as Protests Raise Concerns for Reforms

(via Bloomberg)

(Bloomberg) -- Nigeria’s sovereign-risk premium surged to an eight-month high, and its dollar bonds were some of the worst-performing emerging-market assets on Friday, amid concerns that cost-of-living protests across the country could derail the government’s economic reform plan.

At least 13 people have died in this week’s unrest, which comes soon after violent protests forced another African nation, Kenya, to scrap crucial measures introduced to raise budget revenue. Some investors may fear a similar outcome in Nigeria, where reforms introduced by President Bola Tinubu have inflicted pain on the population.

Political noise and “a challenging context for reform,” are weighing on Nigerian bond prices, according to Citigroup Inc. strategists Alexander Rozhetskin and Luis Costa.   

“The sovereign bonds have been lagging over the last two months, particularly in the last weeks, as the noise around the cost-of-living protests is increasing,” they said in a note sent on Aug. 1.

On Friday, the extra average yield investors demand to own Nigeria’s debt relative to Treasuries, rose 23 basis points to 647 basis points, according to indicative data from JPMorgan Chase & Co. If the spread closes at this level, it would be the highest since November.

Nigerian Eurobonds underperformed a Bloomberg index of frontier and emerging-market sovereign dollar debt. The biggest laggard was the 2051 bond, the price on which slid to 75.4 cents on the dollar as of 12:36 p.m. in London — down 1.4 cents on the day and the lowest in over a month.  

Reforms introduced by Tinubu include the scrapping of costly fuel subsidies, and allowing the naira currency to trade more freely in a bid to attract foreign capital inflows.

However, the protesters are campaigning against the policy changes which have driven inflation to a near three-decade high in a country where 40% of the population lives in extreme poverty. Organizers of the demonstrations have called for 10 days of protests through Aug. 10.

However, the Citi strategists do not expect the Nigerian protests to reach the scale of the recent unrest in Kenya, where the government was forced to abandon measures seen as crucial for increasing budget revenues. For that reason, they maintain their “middleweight” rating on Nigerian bonds, adding “the curve may start to look attractive on a relative value basis.” 

 

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