JOHANNESBURG, Jan 30 (Reuters) – Nigerian government bonds fell sharply on Monday after ratings agency Moody’s downgraded the West African oil producer’s rating to Caa1 from B3 on Friday, saying it was expected the The government’s fiscal and debt position continue to deteriorate.

Longer-dated bonds fell the most, with the dollar-denominated 2051 Eurobond falling more than 2.8 cents on the dollar to 68.758 cents according to Tradeweb data. Only the Eurobond due this year fell less than 1 cent.

“That’s a significant move because there will be a lot of forced selling,” Viktor Szabo, Abrdn’s emerging markets portfolio manager, told Reuters. “Pension funds do not like to have names that are in default or even close to default”

As bond prices fell, the spread investors demanded to hold Nigerian debt instead of ultra-safe US Treasuries jumped 46 basis points to 777 basis points. Nigerian bonds have outperformed other African and emerging market issuers over the past six months, according to JPMorgan.

“The downgrade review focused on Nigeria’s fiscal and external position and the government’s ability to address continued deterioration, as well as alleviate its debt burden through any form of default, including debt swaps or repurchases,” Moody’s said. .

“Immediate default risk is low, assuming there are no sudden and unexpected events, such as another shock or a change in policy direction,” Moody’s added.

Nigeria’s state oil company spent 4.39 trillion naira ($9.54 billion) on a gasoline subsidy last year, which the government has blamed for deteriorating its public finances at the same time as oil production. Oil has been hampered by theft and vandalism on pipelines.

Moody’s said it expects Nigeria’s debt interest payments alone to absorb about half of government revenue over the medium term, up from 35% in 2022. It also expects the debt-to-GDP ratio to rise to 45%, up from 34% % last year and 19% in 2019.

The International Monetary Fund estimates that the country spent 80% of revenues on debt service last year, a proportion it estimates could rise to 100%.

Nigerian Finance Minister Zainab Ahmed said the country’s debt trajectory was sustainable in an interview with Bloomberg TV in early January and that the plan was to reduce the debt service-to-income ratio to 60% by 2023. .

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($1 = 460,0000 naira)

Reporting by Rachel Savage in Johannesburg and Marc Jones in London, Toby Chopra and Christina Fincher

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