Following Moody’s downgrading of the African oil-producing nation late last week, Nigerian government bonds plunged on Monday. Nigeria’s rating was changed by the rating agency from B3 to Caa1, noting the anticipated worsening of the nation’s fiscal and debt situation.
According to Tradeweb data, the 2051 Eurobond, which is denominated in dollars, suffered the highest loss, falling more than 2.8 cents to 68.758 cents, while the Eurobond that is due to mature this year witnessed a loss of less than 1 cent.
Viktor Szabo, the portfolio manager for developing markets at Abrdn, forewarned that there would be a lot of forced selling. Pension funds dislike having names that are in default or even on the verge of default.
The differential, or premium, for holding Nigerian debt as opposed to ultra-safe U.S. Treasuries climbed by 46 basis points to 777 basis points as bond prices fell. According to JPMorgan, Nigeria’s bonds have done better over the past six months than those of other African and emerging market issuers.
Downgrade by Moody’s
According to Moody’s, Nigeria’s fiscal and external positions, as well as the government’s capacity to manage the continuous deterioration without turning to debt defaults through exchanges or buy-backs, were the main factors contributing to the downgrade.
Despite this, the agency claimed that there is little chance of an immediate default due to the lack of any unexpected or unforeseen sudden events.
In addition to theft and pipeline vandalism impeding oil output, Nigeria’s state oil company spent 4.39 trillion nairas ($9.54 billion) on a gasoline subsidy last year, which the government blames for the country’s declining public finances.