Nigeria's fixed income & FX wrap

Nigeria's fixed income and foreign exchange markets have seen a week of bullish sentiment, driven by liquidity in the system and investor interest in various securities. Chuka Nwachukwu, a Fixed Income Trader at UBA, highlighted the positive trends in the market during a recent CNBC Africa interview. The trading activities in Nigeria’s secondary market have been relatively bullish, with bond yields retracing marginally. There were several auctions held throughout the week, injecting liquidity into the system and generating positive investor sentiment. Nwachukwu mentioned that the bond market had been particularly bullish, with significant interest in securities such as the 2028 and 2029 bonds. This week, however, the shorter end of the curve, including the 2023 and 2022 bonds, garnered the most attention. Additionally, investors showed interest in the long end of the curve, particularly the 2029 and 2034 bonds. The bullish sentiment in the market was attributed to the robust liquidity and investor confidence. Looking ahead, Nwachukwu expressed optimism that the bullish trend would continue, especially if there are no Open Market Operations (OMO) in the near future. He anticipated that the Central Bank of Nigeria (CBN) might intervene in the OMO market due to upcoming maturities on both the bond and T-bill sides. While there could be some uncertainty regarding CBN's approach to OMO, the prevailing liquidity in the system is expected to support market activity. The recent directive from the central bank to enforce a 60% Loan-to-Deposit Ratio (LDR) for banks was also discussed. Nwachukwu noted that this regulation aimed to stimulate lending in the economy but could potentially impact the fixed income market as banks adjust their portfolios to comply with the requirement. Despite this, the move is seen as a positive step towards enhancing credit access and economic growth. In the foreign exchange market, currency rates remained relatively stable, with slight fluctuations observed. Nwachukwu predicted that the stability would persist, especially as the CBN continues its interventions. The outlook for FX reserves appeared positive, contingent on stable oil prices and prudent fiscal management. Foreign investor participation in the market was another key topic of discussion. The capital importation figures showcased confidence in Nigeria's economy, with portfolio investors accounting for a significant share. The impending establishment of the Infrastructure Corporation (Infracorp) is expected to bolster investor confidence further and attract more foreign capital into the market. As the week draws to a close, Nwachukwu highlighted two key factors to monitor in the upcoming week. Firstly, the rate dynamics in the secondary market will be crucial, especially with the issuance of OMOs potentially influencing investor decisions. Secondly, the bond market is forecasted to remain bullish, driven by reinvestment activities following maturity events. Overall, the market outlook remains positive, supported by liquidity, investor confidence, and regulatory initiatives.