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More buyers selling to generate liquidity: Nigerian market review
Traders say trading activities in the Fixed Income space has been mixed as market players were either buying to rebuild their positions, profit taking or selling to create liquidity. Nkechi Ezugha, Forex Trader at United Bank for Africa (UBA) joins CNBC Africa for a wrap of the money markets activities.
Fri, 17 Jan 2020 15:28:06 GMT
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AI Generated Summary
- Market players engage in diverse strategies to navigate volatile Fixed Income space
- Foreign investors' interest influenced by fluctuating yields and market appeal
- Rising inflation and economic policies impact investor sentiment in Nigerian market
Trading activities in the Nigerian market have been a mixed bag this week, with traders engaging in various strategies to navigate the volatile landscape. Nkechi Ezugha, a Forex Trader at United Bank for Africa (UBA), provided insights into the market dynamics in a recent interview with CNBC Africa. The Fixed Income space witnessed a flurry of activity, with market players either buying to rebuild their positions, profit-taking, or selling to create liquidity. The Treasury Bill's market, in particular, experienced bullish sentiment at the beginning of the week, driven by a combination of buyers selling to generate liquidity, profit-taking, and position rebuilding. However, the enthusiasm waned as the week progressed, with the release of the bond calendar from the Debt Management Office (DMO) tempering buying pressure. Ezugha noted that market players are now awaiting the bond auction scheduled for next week, anticipating better yields and an opportunity to adjust their positions accordingly. Despite the declining yields in both the bond and Treasury Bill space, Ezugha remains cautious about setting overly ambitious expectations for the year, suggesting that the attractive rates may only be sustainable for the first half of the year. Foreign investors' interest in the market has been fluctuating, with some deterred by the diminishing yields in 2019, while others found the Nigerian market more appealing compared to other emerging markets. However, concerns about rising inflation, which currently stands at 11.9% and is projected to climb further, loom large over investors' sentiment. The approval of increased electricity tariffs and the border closure are expected to drive up prices, potentially impacting inflation rates and consumer spending. In the foreign exchange (FX) market, the Central Bank of Nigeria (CBN) has maintained relative stability, intervening to meet demand and keep rates steady at $362 to a dollar. Despite high demand and capital outflows, Ezugha predicts continued stability in the FX market for the first quarter, supported by inflows from foreign investors. Looking ahead, traders are advised to exercise caution in the bond market as they await the outcome of the upcoming auction. While rates are expected to remain relatively stable, concerns linger about how low rates could go, particularly for the Treasury Bills segment, where rates are currently around 2.8%. The market consensus is that rates may trend lower, possibly hitting 2%, but local investors lack alternative investment avenues, ensuring that rates remain attractive. For the almost auction bills, which offer a yield of 13.2%, the appeal to investors persists. Despite the uncertainties, Ezugha believes that rates will continue to hover around current levels, with any significant changes contingent on CBN interventions or shifts in interest rate regulations.
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