Cautious trading ahead of Nigeria’s bond auction

Traders and investors are treading cautiously in Nigeria's financial markets as they gear up for the bond auction scheduled for tomorrow. Chioma Udu, a Forex Dealer at GT Bank, joined CNBC Africa to provide insights into the fixed income and forex market landscape. The central bank's policy direction and its implications have been a focal point for market participants, with stability in exchange rates and inflation management being key priorities. The support from foreign direct investments (FDIs) and oil prices has contributed to the stability of the exchange rate, aiding in keeping inflation at single digits. Expectations are high for interventions in the real sector to spur economic activity and growth in various industries. Despite these developments, the market has largely remained steady, maintaining normal trading indices. The gradual approach towards monetary policy adjustments, aimed at stimulating the economy, has been well received, with plans for future interventions in the agricultural and educational sectors. Additionally, efforts to attract investments into Nigeria are underway, with a focus on key sectors like services and manufacturing. Both local and foreign investors are eyeing opportunities in the market, which could lead to sustained growth and reduced inflation rates. Looking ahead to the bond auction, expectations are rife as 100 billion worth of bonds are set to be auctioned across three tenors, with the 30-year tenure being the most anticipated. With the market currently calm, trading at 14.5%, all eyes are on the outcome of the auction and its potential impact on market dynamics. In the fixed income market, recent auctions have seen increased activity, with liquidity playing a significant role in influencing rates. The Central Bank of Nigeria's (CBN) conservative approach to mop-ups has led to liquidity being channeled into higher yielding assets, impacting rates on the curve. As for the FX market, the year started with high rates but has since seen a gradual decline, primarily due to minimal mop-up operations by the CBN. The moderation in rates is expected to continue unless the CBN intervenes to mop up excess liquidity. Despite having the capacity to influence market trends, the CBN's current strategy is focused on stimulating lending by banks by keeping liquidity levels relatively high. Overall, market sentiments are cautiously optimistic, with investors closely monitoring the bond auction and the central bank's future monetary policy decisions.