Nigeria’s Eurobonds on Monday shook off the potentially negative impact of the country’s downgrade by Moody’s last week. They rose on the back of gains by bonds issued by Angola, which was raised to positive watch by the rating agency.
Moody’s late on Friday downgraded both countries to B3 from B2. But, while it put Angola on a positive outlook, it placed Africa’s biggest economy under a negative watch. Analysts say these are two bad things that happened to Nigeria at the same time.
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Angola’s prices rebounded on Monday, the first trading day after the rating review by Moody’s, and after a global sell-off on Friday. The gainers were led by the 2032 Eurobond that gained $1.625, while the bonds due in 2048 and 2049 gained $1.125 each.
Nigeria’s Eurobonds rebounded on Monday, with the biggest gains by the bonds maturing in 2029, 2033, and 2038, which rose in early trading as much as $1.375, $1.125 and $1.125, respectively. But they closed at $1.375, $0.625, and $0.5, respectively.
On Friday, October 21, 2022, all of Nigeria’s Eurobonds fell, with the $750 bond due in 2049 leading the pack, with a decline of $5.5. It was followed by its 2038 bond that shed $5.375.
Market analysts believe that Nigeria rose on the back of the positive development on Angola, even though Nigeria has been moved to a negative watch.
After the heavy losses by Nigerian Eurobonds on Friday, some analysts had expected the crash to continue on Monday. But did not happen. These contrasting developments on the Eurobond market on Friday and Monday can be explained in terms of what market analysts call ‘risk-on days and risk-off days. On Risk-on days, investors or market players show determination to take on risks and invest in assets across the various market segments, both debt and equity. Conversely on Risk-off days, not ready to put new money to work. On risk-off days, it does not matter what good news you have on Eurobond, they would drop. What is means is that on such days, people are not willing to take on more risks. Instead, they are determined to sell. That was what happened last Friday, which led to the sell-off in the Eurobond market.
Conversely, Monday was seen by analysts as a Risk-on day, and this was reflected in the gains across the Eurobond market. Therefore, while Nigeria has rating is bad, it has not affected the country’s performance on the Eurobond market because you have a risk-on day.
Moody’s B3 rating is assigned to an asset that is considered to be speculative and of high credit risk. On the rating scale for Standard and Poor’s and Fitch, the move from B2 to B3 is equivalent to a downgrade from B to B-.
In America, a company with a B- rating is considered junk, and not many people would want to touch them. Typically, the kind of risk such a company is carrying is far worse than the risks Nigeria is assuming. They have to refinance their bonds and if they cannot refinance, they could find themselves in big trouble.
It will be interesting for Nigeria to find out what Angola has done to earn a better rating than Nigeria. Until recently, Nigeria’s bonds had lower yields than Angola’s.
Right now Angola is yielding less than Nigeria when the reverse used to be the case until recently. Nigeria’s Nov 2025 Eurobond now yields 14% but Angola Nov 2025 yields 12.16%
It may not be difficult to know the factors responsible for this. Analysts point out the fact that Angola buyback part of its Nov 2025 bond which had 1.5b. The Southern African country last year bought back $636m, with only $864m left. The market considers such a move a statement of strength.
The summary is that Angola has cleaned up its house, and Nigeria learn from this and do the same.
According to figures from the Debt Management Office, Nigeria’s monthly interest expenses on the Eurobonds are $100m, while the country’s next Eurobond maturity is $500m in July 2023 and there is no maturity in 2024. This places Nigeria in a good position to be able to handle the cash flow challenges that will come from this, analysts say.
Moody’s message is clear: “Nigeria, you have three months to get your house in order”. As things stand, Moody’s could downgrade the country in three to six months, if things do not change.
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