Nigeria bond yields fall ahead of JP Morgan index inclusion

LAGOS (Reuters) - Yields on Nigeria's 10- and 20-year bonds have shed 300 basis points over the past month as markets prepare for its inclusion in JP Morgan's Government Bond Index for emerging markets (GBI-EM) from October, dealers said on Wednesday.

The sharp fall in yields was also driven by an improved inflation outlook, they said.

JP Morgan said last month the move to include Nigeria from October could bring up to $1 billion into Africa's second-biggest economy, and would support deepening the local debt market, currently worth around $38 billion.

Yields across the long-end of maturities have been the most hit, with the 20-year benchmark paper trading at 11.46 percent on Wednesday, compared with 14.45 percent at the beginning of August, before JP Morgan's announcement.

The 10-year bond was trading at 12.99 percent on Wednesday, down from around 15.99 percent on August 3, dealers said.

"The expectation is that foreign funds will start picking up bonds after the listing, so local investors are taking long positions, driving yields down," one dealer told Reuters.

The central bank last year lifted a restriction on foreign participation in the local bond market.

Nigeria will become the second country in Africa to join the index, said Standard Bank's Samir Gadio, after South Africa. Nigeria is expected to make up 0.59 percent in the index by Dec 3, JP Morgan says.

The inflation rate in Africa's second-biggest economy has remained stubbornly high, in double-digits over the past two years, but it edged lower in July to 12.8 percent, making bonds marginally more attractive.

Three Nigerian bonds, maturing in 2014, 2019 and 2022, will be eligible for the GBI-EM as they are the most liquid, though the list may change depending on market conditions.

Yields on the 7-year bond shed 200 basis points over the month to Wednesday, while yields on the most liquid 3- and 5-year notes were down less than 100 basis points.

"What matters here is the shift in market expectations and Nigeria's external perception as a debt market that cannot be ignored anymore," Gadio said.

Source: http://news.yahoo.com/nigeria-bond-yields-fall-ahead-jp-morgan-index-155729920--business.html

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