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Nigeria’s five-year borrowing costs hit a record high at a debt auction yesterday on concern inflation is reaching the fastest in more than two years and as oil, the country’s key export, slumped.
The Debt Management Office sold 84 billion naira ($516 million) of bonds, including 30 billion naira of debt due 2017 at a yield of 15.859 percent, 61 basis points higher than the previous sale on May 16. Bids declined 13 percent to 55.84 billion naira, the Abuja-based agency said in a statement on its website today. Nigeria also sold 23.9 billion naira of notes due 2022, with yields 76 basis points higher at 16.21 percent and bids down by about a half to 33.68 billion naira.
While inflation slowed to 12.7 percent in May from 12.9 percent in April, the rate is set to peak at 14.5 percent in the third quarter, the highest since April 2010, according to the Central Bank of Nigeria. Policy makers have held the benchmark interest rate at 12 percent this year to curb the naira’s decline and combat inflation, after raising it by 5.75 percentage points in 2011. The nation’s bonny light crude fell to $93.69 a barrel today from $128.47 a barrel on March 13.
“The anticipated outlook that inflation would rise have made investors soft pedal on their investment decisions on bonds,” Sewa Wusu, an analyst at Lagos-based Sterling Capital Ltd., said by phone today.
Nigeria also sold 30 billion naira of new debt due 2019 at a yield of 16 percent. Another 20 billion naira of debt due in 2019 and 28.7 billion naira of notes due in 2022 were allotted on a non-competitive basis, the debt management agency said.
“What we have seen is that banks have been pushing yields higher while PFAs were somewhat more conservative in their bids,” Samir Gadio, an emerging-markets strategist at Standard Bank Group Ltd. in London, said in an e-mailed response to questions, referring to pension fund administrators. “This suggests financial institutions were probably keen to re-enter the bond market at more attractive levels. We suspect yields have peaked for now as market players and PFAs will take advantage of these appealing rates.”
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