As the governor of the Central Bank of Nigeria, Sanusi Lamdio Sanusi suggested that the tightening cycle could continue into 2014 and this has had some effect on the fixed income market.
“It’s obvious that going into next year [the] option of any kind of loosening is almost out of it, in worst case scenario we expect them to maintain the status quo,” Kizito Odunze, Bond sales Analyst at Dunn Loren Merrifield told CNBC Africa.
Given the election spending that will take place next year, the expected headwinds in 2014 such as the renewed talks of tapering in the US, there are strong indications that there will be a need for more fiscal tightening.
“The market has [the] impression that if any kind of tightening is going to take place, it probably won’t happen in the first MPC meeting next year," he explained.
According to the Federal Open Market Committee October meeting, tapering will most likely start from March next year thus most investors locally have started a strategy of placing shorter on the T-bills market and taking maturities that most people will be out of before March next year.
“When the new interest rates regime takes place, most people can adapt to it so traders and investors locally are reacting to that and placing shorter on the T-bills market,” he said.
This week, according to Odunze, some maturities in the bond market could affect liquidity. Nonetheless, as some of them are in the hands of Pension Fund Administrators and private investors, a re-introduction of those funds back to the fixed income market is expected.
“We saw a little bit of that last week where there was a little bit of bullish run as a result of some of the bonds that matured last week,” he added.