Nigeria, Angola appetite for FX debt elevated amid U.S interest rate cut

Nigeria and Angola are two African countries that may issue new debt because of the Federal Reserve’s half-percentage-point interest rate cut, according to BancTrust and Co.

This larger-than-expected loosening of US monetary policy will “probably drive market yields lower in the sub-Saharan Africa space, which would increase issuers’ attraction to the international capital market,” according to a research note released on Wednesday by the London-based Investment Bank.

It stated that shortly after the Fed’s decision, Nigeria is anticipated to launch a Eurobond. If yields at the mid-to long-end of Angola’s curve approach 9 percent—not too dissimilar from the price at which most of the country’s Eurobonds were priced at issuance—the country is likely to make a similar sale, the bank predicted. Additionally, Angola might offer a debt-for-nature swap, it stated.

According to BancTrust, Kenya is unlikely to tap the global bond market shortly due to “its own idiosyncratic risk,” which includes high debt-servicing expenses and depleting foreign reserves. According to the report, Kenya will therefore “probably rely on concessional financing until investor sentiment toward the Ruto administration improves.”.

Financial institutions and businesses like Access Bank Plc, FBN Holdings Plc, and SEPLAT Energy Plc may be able to access international debt markets because of Nigeria’s successful Eurobond offering. The Federal Reserve reduced interest rates by 50 basis points on Wednesday, bringing the federal funds rate from 4 percent to 5 percent.

Since the Fed started raising rates in March 2022, this is the first-rate cut, indicating a change in the Fed’s monetary policy strategy.

The Fed said in a post-meeting statement that “the Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.”

Through its “dot plot,” the Federal Open Market Committee of the central bank also revealed that it expects additional reductions of 50 basis points by the end of 2024. Additionally, it recommended cutting spending by half in 2026 and another full percentage point by the end of 2025.