Federal Government of Nigeria ( bonds fell heavily on Monday after ratings agency Moody’s downgraded Nigeria to Caa1 from B3, saying the government’s fiscal and debt position was expected to keep deteriorating.
Longer-dated bonds were down the most, with the dollar-denominated 2051 Eurobond falling more than 2.8 cents in the dollar to 68.758 cents according to Tradeweb data . Only the Eurobond maturing this year fell less than 1 cent.
“That is a significant move because there will be a lot of forced selling,” Viktor Szabo, emerging market portfolio manager at Abrdn, told Reuters. “Pension funds don’t like have names that are defaulting or even close to defaulting”
As the bond prices tumbled, the premium or ‘spread’ investors demanded to hold Nigerian debt rather than ultra-safe U.S. Treasuries jumped 46 basis points to 777 basis points. Nigeria’s bonds had outperformed other African and emerging market issuers over the last six months, according to JPMorgan.
“The review for downgrade focused on Nigeria’s fiscal and external position and the capacity of the government to address the ongoing deterioration – other than by alleviating the burden of its debt through any form of default, including debt exchanges or buy-backs,” Moody’s said.
“Immediate default risk is low, assuming no sudden, unexpected events such as another shock or shift in policy direction,” Moody’s added.
