Bloomberg News

Nigeria to Sell 70 Billion Naira of Bonds After May Rate Rise

June 14, 2011

June 14 (Bloomberg) -- Nigeria will offer 70 billion naira ($448 million) of bonds at a monthly debt auction tomorrow, after the central bank raised its benchmark interest rate for the third time this year in May to curb inflation.

The West African country will sell 35 billion naira each of debt due in 2014 and 2015, the Abuja-based Debt Management Office said in a statement published on its website. Demand for the notes due 2015 exceeded supply by the most since September at the last sale on May 16.

The inflation rate of Africa’s top oil producer declined to a revised 11.3 percent in April from 12.8 percent a month earlier, the statistics agency said on May 18. Central bank Governor Lamido Sanusi on May 24 raised the benchmark interest rate, lifting it half a percentage point to 8 percent to stabilize the naira and slow inflation, which the bank aims to bring below 10 percent.

“The risk is that inflation for May could print higher this week and peak for this year, pushing yields further up in the secondary market from their current levels,” Samir Gadio, a London-based emerging-market strategist at Standard Bank Group Ltd., said by e-mail today. “The main caveat is that the CBN is likely to raise rates further in July and tighten liquidity.”

The federal government’s 4 percent bonds due April 2015 yielded 12.74 percent in the secondary market yesterday, according to data on the the Financial Markets Dealers Association’s website. That compares with a 12.68 percent yield a week earlier. The 10.5 percent bonds due March 2014 yielded 11.53 percent yesterday, unchanged from a week earlier.

“Inflation will probably fall to single digits by December,” said Gadio. “In such a context, investors should probably play the interest rate and inflation cycle -- buy now in the primary market or post-auction in the secondary market -- and sell in July when a lower June inflation figure is released and prior to the MPC scheduled for next month.”

Nigeria issues sovereign bonds on a monthly basis to support the domestic bond market, assist in monetary control and fund government deficits.

--Editors: Ana Monteiro, Alex Nicholson

To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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