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How to invest in Nigerian Eurobonds
Chike Olisahby Chike Olisah May 10, 2021Reading Time: 4 mins read
Treasury Market T-bills, African Finance Corp. issues $750 million 7-year Eurobond at lowest yield to date
As of 2019, Nigeria’s Eurobonds were regarded as one of the top 5 best-performing Eurobonds in the world.
Although Nigeria’s Eurobonds remain one of the most profitable in the investment world, not many individuals know how to invest in them. The Federal Government and a number of corporate organisations in the country subscribe to Eurobonds and issue them quite often, lending credence to their attractiveness as an investment tool.
What is Eurobond?
Basically, Eurobonds are financial instruments issued by a country or corporate organisation in a currency different from the currency of the issuer.
Nigeria typically issues Eurobond instruments denominated in US dollars. For example, the 6.75% $500 million January 2021 Eurobond was denominated in US dollars.There is the sovereign, which is referred to as a government bond, and the corporate bond. Eurobonds operate like fixed income securities in terms of bond instruments. It has a coupon, an interest rate paid on bonds (which is paid bi-annually), a price at which the bond will be purchased, and also a yield.
The price and yield have an inverse relationship meaning that when the price goes up, the yield comes down. When the yield is coming down, the instrument is trading at a premium compared to when it was issued.
An investor can buy Eurobonds while the primary auction is ongoing or later, at the secondary market, for those who were unable to participate in the primary auction.How to invest in Nigerian Eurobonds
The process of investing in Eurobonds in Nigeria is not any different from that of investing in local bonds. Both bonds can be bought from either the primary market at the initial offer level or at the secondary market for existing bonds.All that is required is for the investor to complete the tender for the Federal Government of Nigeria or corporate bonds form, submit the tender through any of the authorized dealers and make the required payment when the bid is successful.Be mindful of the bond’s risk profile before investing
Eurobonds can either be corporate or government bonds. Corporate bonds may offer higher interest rates than government-issued Eurobonds but they also come with higher risk.
If you want to invest in Eurobonds, ensure that you weigh the risk characteristics of the bonds and set them against the interest rate to know if it is worth it. Most Eurobonds come with credit ratings, which serve as a measure of their quality and risk profile.
Usually, bonds with the highest quality credit ratings come with the lowest yields while bonds with lower credit ratings offer higher yields. The yield, in this sense, is a measure of the bond issuer’s creditworthiness meaning that the greater the credit risk on an investment, the higher the yield investors would demand to compensate for it.