Nigeria’s Domestic Dollar Bond Offers New Opportunities for Savvy Investors

The Federal Government of Nigeria’s newly introduced domestic dollar bond is creating a buzz among investors, particularly those in the diaspora and retail sectors.

Offering a 9.75% coupon rate, the bond opens fresh avenues for those seeking stable returns in dollars, with a minimum subscription amount of just $10,000.

This move is part of a broader $2 billion program to be raised in four tranches of $500 million each, and it’s already drawing considerable interest from Nigerians both at home and abroad.

For Jamiu Agah, a Lagos-based information technology consultant earning in dollars, the new bond is a game-changer.

Agah, who earns $50,000 annually working remotely for a U.S.-based tech start-up, had been eyeing investment in Nigerian Eurobonds but was deterred by the high minimum subscription amount of $200,000.

The domestic dollar bond, however, slashed his wait time to zero by lowering the entry barrier to $10,000, making it much more accessible.

Agah is not alone in this shift. The bond has captured the attention of a broad range of Nigerian investors seeking to diversify their portfolios with dollar-denominated assets.

According to Chuka Nwachukwu, Group Head of Assets and Liability Management at United Bank for Africa (UBA), participation in the bond has been “highly encouraging,” particularly among Nigerians in the diaspora.

“They see it as a unique opportunity to invest in Nigeria while still securing returns in dollars,” Nwachukwu said.

Beyond its lower entry point, the bond’s appeal also lies in its attractive returns compared to traditional Eurobonds. With a 9.75% coupon, it outpaces the 9.58% yield on Nigeria’s $1.25 billion Eurobond, which matures in 2029.

Investors are enticed by the combination of stability and higher returns, especially amid Nigeria’s economic reforms, which have been driving confidence in the country’s financial markets.

The bond is open to a diverse group of investors, including foreign institutions, Nigerians living abroad, and those within the country.

It presents an appealing alternative to Eurobonds, particularly for retail investors who have played an increasingly significant role in Nigeria’s capital markets.

Retail investors accounted for over a third of total domestic trading in 2023, and their appetite for diversified investment opportunities continues to grow.

This development is seen as a positive step towards rebuilding confidence in Nigeria’s financial system, particularly in light of past restrictions on domiciliary accounts, which had eroded trust in local banks.

The new Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, has introduced policies aimed at restoring confidence, helping to bolster the appeal of the domestic dollar bond.

For savvy investors like Agah, this bond represents a strategic way to hedge against the volatility of the naira while earning stable, dollar-denominated returns.

As demand for the bond continues to rise, it’s clear that this new financial instrument is opening doors for a wide range of investors seeking to tap into Nigeria’s evolving economic landscape.

With just one week of primary trading completed and five more days to go, the domestic dollar bond is poised to solidify its place as a cornerstone investment for Nigerians, both locally and internationally.