Nigeria's fixed income: Bearish sentiment to persist at week open

Nigeria's fixed income market is bracing for a bearish start to the week as analysts predict a downturn due to reduced liquidity in the financial system. The Central Bank of Nigeria's recent sale of around $283 billion at the Friday OMO auctions has sent ripples through the market, impacting rates and investor sentiments. Dayo Amzat, the Director at Tetris Capital, provided key insights into the market dynamics in a recent interview with CNBC Africa. Amzat highlighted the uncertainty surrounding interest rates, stating that the spike to 22% on short-term instruments was a deliberate move by the central bank to attract foreign inflows. He emphasized that while short-term rates may have hit their peak, the long-term bond market remains volatile with fluctuating investor interest. The offshore investment landscape has seen fluctuations in both short and long-term instruments, with Amzat noting a recent foreign buying spree that boosted bond prices. However, this surge was short-lived as currency fluctuations and market volatility dampened investor confidence, leading to a temporary halt in bond purchases. The discussion then shifted to the forex market, where Amzat shed light on the impact of the black market on official exchange rates. He argued that the black market serves as a crucial rate-setting platform, influencing both local and foreign investor decisions. Despite the CBN's focus on regulating the parallel market through interventions with BDCs, Amzat stressed the need for improved liquidity to stabilize rates. Addressing the issue of dwindling forex reserves, Amzat proposed short-term solutions to boost foreign currency inflows, such as selling national assets to inject liquidity into the market. He emphasized the importance of signaling to foreign investors that Nigeria has the capacity to meet their forex demands, thereby restoring confidence in the market. Amzat's insights echoed concerns raised by investors about the central bank's management of forex sales and the need for a transparent and sustainable strategy to address liquidity challenges. The discussion underscored the importance of balancing short-term interventions with long-term growth strategies to stabilize the market and attract foreign investment. Overall, Nigeria's fixed income and forex markets are navigating a challenging landscape marked by liquidity constraints and regulatory uncertainties. As the new week unfolds, market participants will be closely monitoring the unfolding developments and policy interventions to gauge the direction of interest rates and investor sentiment.