April 8, 2011 / 3:09 PM / 8 years ago

Nigeria dollar bond in pre-election rally as oil surges

LONDON, April 8 (Reuters) - Nigeria’s $500 million Eurobond rallied sharply on Friday and its yield premium to U.S. Treasuries fell, as investors bet that oil’s surge to 32-month highs would help investors overcome pre-election jitters.

The bond, issued in January XS0584435142=R at 98.2, rose 1.8 points in price to 103, while the yield fell 0.4 percent to 6.37 percent, extending this week’s dip to a total 0.5 percent.

The premium investors demand to hold Nigerian sovereign debt compared with U.S. Treasuries fell by 31 basis points to 291 bps on JP Morgan’s EMBI Global index 11EML of sovereign emerging bonds. The broader index saw yield spreads tighten just 5 bps.

Parliamentary elections are set for this weekend in sub-Saharan Africa’s second-largest economy after being postponed from last Saturday. Incumbent Goodluck Jonathan is expected to comfortably win a presidential vote on April 16. [ID:nLDE7361MH].

Investors are betting the elections will pass off smoothly while the oil price rise is a boon for Nigeria, which exports 2 million barrels per day of sweet crude which fetches a premium of around $4 to the Brent benchmark.

“Not only is the conduct of the election being done in a multi-party way — the postponement was agreed on by all parties — but also generally you can see what’s happening to the oil price,” said Daniel Broby, chief investment officer at Silk Invest, a fund which holds Nigerian bonds.

“There isn’t a credible united opposition so I do expect Jonathan to win quite easily,” Broby added.

Analysts noted the rally also coincides with a buoyant investor attitude towards frontier and commodity-exporting economies — B-rated Georgia, for example, issued a $500 million bond this week which was six-times subscribed.

“One needs to take into account that the continued surge in oil prices has a favourable impact on the intrinsic risk metrics associated with Nigeria’s electoral cycle,” Standard Bank strategist Samir Gadio said.

Election jitters had caused Nigerian bonds to lag recently compared with those of African peers Ghana and Gabon. JP Morgan analysts pointed out in a note this week that Nigeria was trading 100 bps wide to fellow oil-exporter Gabon, despite their bonds having been issued at similar spreads.

Both carry a BB- rating from Fitch.

JPM raised Nigeria to overweight in its model portfolio.

“We see 75 bps of upside if our base-case of smooth elections with Goodluck Jonathan winning materialises,” its analysts told clients in a note. (Reporting by Sujata Rao and Chijioke Ohuocha; Editing by Catherine Evans)

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