Bloomberg News

Nigeria Faces Highest Yield Since June Auction on Rate Bets

September 13, 2011

(Updates with naira movement in sixth paragraph.)

Sept. 13 (Bloomberg) -- Nigeria faces its highest borrowing costs at an auction since June as yields climb on speculation the central bank will raise interest rates to contain inflation.

Africa’s biggest oil producer will offer 70 billion naira ($450.1 million) of bonds tomorrow, including 25 billion naira of notes due 2014. Yields on the three-year debt have risen 37 basis points, or 0.37 percentage points, since the last auction on Aug. 17 to 10.82 percent yesterday, according to data from the Financial Markets Dealers Association’s website.

Central bank Governor Lamido Sanusi, who has raised the benchmark rate four times this year to 8.75 percent, is ready to keep increasing it if inflation doesn’t remain below 10 percent, he said in a Sept. 7 interview. Prices increased an annual 9.4 percent in July, the first time they were below 10 percent since May 2008.

“We see the yields at the auction printing around current market levels, with a possible moderate premium,” Samir Gadio, a London-based emerging-markets strategist at Standard Bank Group Ltd., said in an e-mailed reply to questions yesterday. “The market is still concerned that the ongoing disinflation process is not sustainable and has not fully re-priced its consumer price index expectations.”

Currency Protection

The central bank will probably tighten monetary policy to stem pressure on the currency even as the inflation rate is likely to decline from 9.4 percent in July, Gadio said. Inflows from the Federation Account Allocation Committee, which disburses funds to the federal, state and local governments, will support the level of demand for the bonds in coming days, he said.

Nigeria’s naira, which has slipped 1.6 percent since August in interbank trading, depreciated 0.1 percent to 155.5 per dollar as of 11:55 a.m. in Lagos, the weakest intraday level since Sept. 9, according to data compiled by Bloomberg.

Nigeria is tightening monetary policy as other central banks from Brazil to Turkey are maintaining or cutting rates to bolster growth amid a global economic slowdown. Investors are boosting bets that South Africa’s central bank will cut its benchmark rate from a 30-year low with forward-rate agreements starting in March, used to lock in borrowing costs, falling to a record-low 5.13 percent on Sept. 8.

The nation’s Debt Management Office will also sell 25 billion naira of 10.7 percent bonds maturing 2018 at its monthly auction and 20 billion naira of debt due 2015. The Abuja-based National Bureau of Statistics is scheduled to release August inflation data on Sept. 16.

“We remain of the opinion that short-dated paper is vulnerable to rate rises,” CSL analysts including London-based Guy Czartoryski, said yesterday in an e-mailed note.

--Editors: Ana Monteiro, Gavin Serkin

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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