US Federal Reserve to announce first rate hike today

The US Federal Reserve is set to announce its monetary policy direction today, with global markets anticipating a rate hike amid rising inflation levels. As the world awaits this decision, questions arise about how this move will affect emerging markets seeking to raise funds in the Euro-Bond market. Egie Akpata, the Chairman of Skymark Partners, recently shared his insights on this topic during an interview with CNBC Africa. He discussed various aspects such as the impact on bond markets, the decision of Nigeria to hold off tapping into the Euro-Bond market, and the dynamics in the private debt markets. Akpata expressed his views on the expected rate hike, indicating that the bond markets have likely factored in at least a 25 basis points increase. With the 10-year US Treasury yield already around 2.2%, reflecting a substantial jump from less than 1.3% half a year ago, the markets seem to have priced in this impending hike. He mentioned that the Euro-Bond market has also experienced fluctuations in yields over the past months related to rate hike expectations. While the current market conditions may be favorable for Euro-Bonds, continued rate hikes could potentially drive bond yields higher in the future. Discussing Nigeria's decision not to access the Euro-Bond market, Akpata voiced concerns about the nation's financing needs amidst a significant deficit. He highlighted the utilization of borrowed funds to support domestic subsidies as a critical issue, emphasizing the importance of finding sustainable sources of financing. As the country heavily relies on borrowed resources to bolster its reserves, there is a looming need for cash infusions to stabilize the financial situation. On the topic of government security yields in Nigeria, Akpata pointed out a disparity between short-term and long-term rates influenced by liquidity conditions and central bank policies. Despite the current low government security yields, he projected an uptick in yields in the near future due to increased borrowing requirements driven by substantial budget deficits. As the Nigerian government ramps up borrowing to cover these deficits, the pressure on local markets is expected to push yields higher in the coming months. Shifting focus to the private debt markets, Akpata discussed the preference for commercial papers over corporate bonds, attributing this trend to the significant spread between short and long-term rates. While acknowledging the impact of tax changes on corporate bonds, he anticipated a potential resurgence in corporate bond activities in the second quarter of the year once audited accounts are released. In anticipation of the upcoming monetary policy meeting of Nigeria's Central Bank, Akpata suggested that external factors such as the Russia-Ukraine conflict might not prompt immediate reactions in the policy decisions. He emphasized the limited tools available to address inflationary pressures stemming from global events and commodity price hikes. Regarding the central bank's strategy to boost official market supply and curb black market activities, Akpata highlighted the importance of efficiently channeling funds to address currency demands. In conclusion, Akpata's insights shed light on the intricate interplay between global economic developments, monetary policy decisions, and the financing needs of emerging markets like Nigeria. As the US Federal Reserve's rate hike looms large, the repercussions on bond markets, local borrowing costs, and debt market dynamics remain key areas to monitor in the evolving financial landscape.