NEWS

Nigeria’s Dollar bonds recover after initial drop triggered by Trump’s military threat

Maureen Ikpeama11 months ago11 months ago355111 mins

Nigeria’s sovereign dollar bonds, which initially plunged on Monday following US President Donald Trump’s threat of military action against the country, are expected to rebound as investors shrug off the remarks and refocus on the nation’s improving fundamentals.

This is as the chief executive of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf urged the federal government to adopt a strategic and proactive diplomatic response to avert the far-reaching economic and reputational consequences of the recent threat of military action against Nigeria by United States President Donald Trump.

Yusuf warned that even the mere suggestion of U.S. military intervention carried “grave implications for investor confidence, financial stability, and the country’s global image

“The U.S. President’s threat of military intervention in Nigeria is unwarranted, counterproductive, and economically destabilising. Such statements send unsettling signals to investors, heighten risk perception, and undermine confidence in Nigeria’s economy,” Yusuf said.

Trump’s weekend post on his Truth Social account, accusing Nigeria of failing to protect Christians from Islamist militants, sent shockwaves across global markets. He claimed to have instructed the Pentagon “to prepare for possible action” and announced plans to suspend aid to the country if the alleged violence persisted.

According to Bloomberg data, the statement triggered a brief selloff in Nigeria’s dollar-denominated debt, with all 10 of the worst-performing emerging-market bonds belonging to Nigeria as of 10:45 am in Lagos. The 2047 notes slumped as much as 0.6 cents on the dollar to 88.26 cents before trimming losses. The naira also weakened, sliding 1.2 per cent to N1,442.80 per dollar, its sharpest single-day drop since June.

However, market watchers say the panic may be short-lived, as investors seem not to be taking the US President’s statement seriously. Already, the sell-off is waning, as market watchers say investors are taking advantage of the dip to stock up on the country’s dollar bonds.

Commenting on the development, Dr Yusuf said that though based on “incomplete intelligence and misjudged assumptions”, the comment had already generated economic, diplomatic, and perceptional consequences that could unsettle financial markets and erode investor trust.

“Regardless of its inaccuracy, the pronouncement has already generated economic and perceptional consequences for Nigeria. It risks undermining the country’s image as a stable investment destination, unsettling financial markets, and eroding confidence among both domestic and international investors.”

To mitigate these risks, the CPPE Chief Executive called on the Tinubu administration to intensify diplomatic engagement and strategic communication. “Nigeria must adopt a strategic and proactive diplomatic response. This should include immediate high-level bilateral discussions with the U.S. government to clarify facts and de-escalate rhetoric.”

He further recommended that Nigeria deepen collaboration with Washington and regional partners on intelligence, counterterrorism, and peacebuilding, while strengthening domestic policy fundamentals to reinforce resilience against external shocks.

“While Nigeria must continue to strengthen internal security architecture and governance, any external engagement should be cooperative, not coercive,” Yusuf emphasized. “Unilateral military action would destabilize Nigeria’s economy, threaten regional stability, and aggravate humanitarian conditions.”

He maintained that the constructive path forward lay in diplomacy, partnership, and mutual respect for sovereignty. “The way to go is dialogue, not threats. We must project calm, reinforce investor confidence, and protect Nigeria’s economic stability through proactive diplomacy.”

Yusuf warned that the rhetoric could trigger capital flight, depress foreign direct investment (FDI) inflows, and drive up Nigeria’s country risk ratings. “Even the mere threat of military action by a global superpower has inflicted significant reputational damage on Nigeria’s image as a safe and viable investment destination,” it noted.

CPPE added that financial markets would likely react sharply, with possible declines in stock valuations, rising sovereign bond yields, naira depreciation, and heightened volatility as investors reassess Nigeria’s risk profile.

Yusuf also cautioned that the perceived geopolitical tension could distort macroeconomic stability. “An escalation in perceived geopolitical risk could tighten financial conditions and distort macroeconomic indicators. Nigeria may experience rising interest rates, weakened currency, higher inflationary pressures, and reduced foreign reserves,” he said.

According to the head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, while some traders might react in the short term, the market would soon stabilise.“I don’t think investors are going to take him seriously. Of course, as we saw on Bloomberg, there will be some people who will panic. I expect that before the end of the week, the market will stabilise. Don’t forget that in the last couple of weeks, people were struggling to buy Eurobonds; all of them were actually at a premium. So this is an opportunity for some people to pick up those assets at relatively good prices.”

He noted that the buying activity would likely offset any sell pressure from jittery investors. “You’re going to see that the impact of those who pick up those assets will even nullify the effect of those exiting,” Olubunmi said.

“However, another thing is also contingent on Nigeria’s response. For instance, if Nigeria now makes things worse, that might spook people. But if they play their cards, I don’t think we’ll see anything serious before the end of the week.”

At the close of trading, Nigeria’s Eurobonds had begun to pare early losses, reflecting investor confidence that the storm may pass as swiftly as it arrived. Market analysts had described Trump’s comments as an unexpected escalation that may not have lasting effects on investor sentiment.

Anders Faergemann, portfolio manager at PineBridge Investments, told Bloomberg, “We expected a negative knee-jerk reaction to Trump’s comments, but we are comfortable with Nigeria’s creditworthiness and outlook. We expect markets will calm down.”

“Markets may overreact in the short term, but the Tinubu administration’s reform path continues to signal credit improvement. Unless Washington follows through with concrete sanctions or intervention, the panic will unlikely persist.” Another analyst noted.

Adriaan du Toit, director of emerging-market credit research at Alliancebernstein, similarly pointed out that “the threat of US military action is an unexpected and seemingly disproportionate escalation worth monitoring; it doesn’t have sufficient substance at this point to dim the positive fundamental momentum.”

Trump also announced plans to designate Nigeria a “Country of Particular Concern”, a classification under US law for nations accused of severe violations of religious freedom. He added that the US could withdraw its aid to Nigeria, totalling about $1 billion in 2023.

In a swift response, President Bola Ahmed Tinubu rejected Trump’s characterisation of Nigeria, describing it as a “disregard for the consistent and sincere efforts of the government to safeguard freedom of religion and beliefs for all Nigerians.”Tinubu maintained that his administration has demonstrated commitment to protecting the rights of all citizens regardless of faith, adding that Nigeria “remains a nation of laws and coexistence.”