While crude’s recent decline saw a concurrent slump in Nigeria’s 2021, $500mm sole Eurobond issue given that the state relies on crude exports for roughly 95 percent of foreign-currency earnings (vital in order to keep the naira within a 3% band of USD/NGN150 per the central bank’s unstated mandate), energy strategists with Barclays remained bullish with their near and long-term price forecasts, maintaining Friday that despite “concern about the potential path of OECD demand” against the backdrop of recent, downwards GDP revisions “a series of problems and disappointments on the supply side has produced a sharp slowdown in the pace of non-OPEC supply growth, providing the market with further insulation from the slowing of demand.”  Yet as we indicated last month the CBN’s habitually hawkish policy rhetoric, which manifested itself with a 75bp hike only one week later, continues to point to the prospect of further tightening in the near-term given the government’s need to attract capital flows and also cushion against inflation expectation uncertainties tied to the imminent implementation of a new minimum wage law (as well as an overall fiscal deficit projected to be just above 4% of GDP this year), removal of fuel subsidies and liquidity injections all in the coming fiscal quarter.  Thus while Nigeria’s FX reserves are still slated to remain comfortably above USD30bn to nearly one year’s worth of imports–a good metric for bond holders to monitor–the country’s yield curve remains in the midst of an upward shift that should still invite caution.

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