Nigeria’s naira bonds and treasury bills, priced in the local currency, are turning out to be something investors from abroad want to stay away from as the country’s high inflation makes the yields on those assets unattractive for them.

At 22.4 per cent, price levels in Africa’s biggest economy increased to their highest levels in nearly two decades last month, outrunning rates at which such securities are priced so much that returns on them will have been much eroded by the time they fall due.

That has made their real yields negative, and foreign investors want notes to be priced higher to make up for inflation’s adverse impact.

Bloomberg cited a London-based institutional investor on Thursday as saying only rates in the 15-20 per cent band could tempt it to plough money into naira-denominated securities. An analyst at another told the news outlet that treasury bills’ yields need to really reflect the monetary policy rate to encourage foreigners to invest in the local debt market.

The circumstances are being complicated by Nigeria’s ongoing currency overhaul, which has collapsed its numerous exchange rates into a single reference rate and helped bridge the gulf between the parallel and official rates.

Removing that spread, which was as wide as 60 per cent before the new reforms, implies foreign investors looking to invest in naira bonds and T-Bills have to pay that percentage more to do so since they have to convert their capital into the local currency to make that happen.

Yet, the trend is a departure from Nigeria’s Eurobonds, which this month quickened to a 5-month high, after considerable interest from investors excited about the foreign exchange revamp.

“We’ve benefited from a big rally on the Eurobonds as spreads have declined by over 200 basis points,” Kevin Daly of London’s Abrdn Investments Limited told Bloomberg.

“We expect spreads to compress further.”

His firm offloaded its investment in Nigeria’s T-bills three years ago following policies pegging the exchange rate and introducing capital controls.

Daly said Abrdn will be willing to reinvest when rates reach between 15-20 per cent and the local currency steady in the neighbourhood of 750 to a dollar.

“T-bill yields may have to rise to re-establish the policy rate as the anchor for interest rates before foreign portfolio investors can be confident to reengage with Nigeria,” Ayo Salami, chief investment officer of an asset management company in London, told the news outlet.

His company, Emerging Markets Investment Management Limited, controls around $40 million in investment in Nigeria’s bonds and stocks.

Unless Salami “sees a genuine willing buyer, willing seller foreign currency market,” he is not prepared to invest in Nigeria, his company having been forced to cut back its activities in Nigeria after the previous government introduced foreign exchange curbs.

PT