Access Bank: Investor appetite in bond market remains soft

Access Bank's Head of Fixed Income, Bukky Aregbesola, warned of increased pressure on funding rates in Nigeria's money market due to a lack of inflow. The bond market is experiencing soft investor appetite, leading to a slow market activity. Aregbesola highlighted the illiquidity in the money market, resulting in a sluggish fixed income market with some selling to provide liquidity for transactions. Despite a 46 billion inflow from bond coupons, the market's liquidity position remains negative. This liquidity challenge is expected to persist until the next week's expected fact payments. The FX market saw the Naira closing flat against the US dollar at $1 to 316 Naira while depreciating at the investors and exporters window to $1 to 363 Naira. Aregbesola attributed the fluctuation to foreign portfolio investors selling dollars to engage in the fixed income market. However, local demand for dollars remains high, causing consistent depreciation. Regarding the treasury bills market, Aregbesola noted buying interest in bills offered at the primary market auction due to pressure on the interbank market. Despite the current market status, investors have the opportunity to potentially capitalize on market dynamics and make gains. The Central Bank of Nigeria's efforts to increase FX reserves may lead to interest rate hikes to attract more investors, potentially impacting market outlook. Aregbesola anticipates rates to remain elevated in the short term, expecting an increase even after inflows come in. While increasing rates may attract foreign investors, it could also have long-term impacts that need careful consideration. Analysts suggest the current market situation presents a perfect opportunity for investors to enter and create gains. Aregbesola supports this argument, emphasizing the upcoming maturities and the need for the central bank to manage liquidity effectively to stabilize FX rates. Overall, the market is poised for potential opportunities for investors amid challenging market conditions.