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Nigeria’s fixed income and FX review
The Central Bank of Nigeria sole 194 billion worth of Treasury bills at Thursday's Primary Market Auction. As the four-day trading week comes to a close, Bankole Odusanya, Head of Fixed Income trading at UBA joins CNBC Africa to review this week’s trading at Nigeria’s fixed income and forex market.
Fri, 31 May 2019 14:11:27 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- The liquidity levels in Nigeria's system have surged to approximately 400 billion, leading to a drop in interest rates across various market segments, with tradable rates falling as low as 11%. Most investments are focused on the short term as investors await greater economic clarity and policy direction.
- Profit-taking activities have been observed at the end of the month, with investors selling bills acquired at higher yields and planning to re-enter the market when yields stabilize around 12 to 12.50%, signaling a trend of portfolio realignment.
- The Naira has remained stable against the dollar, trading around 3.6 to 3.61, supported by consistent interventions from the Central Bank and bolstered by crude oil prices above the $60 benchmark. Despite global trade tensions, Nigeria's oil-dependent economy benefits from increased oil prices, albeit with some offset due to significant petrol and product imports.
Nigeria's fixed income and FX markets showed resilience and stability this week amidst global uncertainties and domestic economic factors. Bankole Odusanya, Head of Fixed Income trading at UBA, provided insight into the current state of the markets in a recent interview on CNBC Africa. The liquidity levels in the system have increased significantly, reaching about 400 billion, leading to a drop in interest rates in the tradable market. Rates have fallen as low as 11% across various segments, with morning market rates even touching single digits at 5 to 7%. The increased liquidity has driven more appetite for treasury bills, while activity in the bond market has been relatively subdued. This lack of robust activity can be attributed to investor caution and a desire for clarity on long-term economic plans from the government. With President Buhari inaugurated for another four years, investors are eagerly awaiting signals on economic strategy, particularly regarding interest rates, revenue mobilization, and fiscal policies. Until there is greater transparency on these fronts, most investments are focused on the short term, with investors closely monitoring policy developments and their potential impact on the market. As the month draws to a close, profit-taking activities have been observed, particularly on September and August bills. Investors are capitalizing on the lower rates to sell bills acquired at higher yields, with plans to re-enter the market when yields hover around 12 to 12.50%. This portfolio realignment is a common practice at the end of the month and could set the tone for trading in the new month. On the FX front, the Naira has remained stable against the dollar, trading around 3.6 to 3.61, thanks to consistent interventions by the Central Bank. Crude oil prices have remained above the $60 benchmark, supporting the Naira and bolstering external reserves, which have surpassed $45 billion. Despite volatility in global trade tensions, Nigeria's oil-dependent economy has benefited from the resulting increase in oil prices. The ongoing rift between the US and China, along with the involvement of other countries like Mexico, has led to a rise in crude oil prices, providing a lifeline for Nigeria's revenue generation. However, the impact on external reserves is somewhat mitigated by the country's significant expenditure on petrol and product imports. The yield curve in Nigeria has steepened positively, with rates ranging from 11% to 14.3% on the bond end. Money market rates, including overnight and 30 days, remain in single digits, indicating a stable outlook for the time being. Overall, Nigeria's fixed income and FX markets exhibit resilience and stability in the face of global uncertainties and await further clarity on domestic economic policies to guide investor sentiment in the coming months.
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