More activity driven by liquidity of T-bills: Nigerian FX markets

Nigeria's fixed income and Forex markets are facing a challenging outlook as concerns over declining external reserves and potential inflationary pressures loom. Bankole Odusanya, Head of Fixed Income Trading at UBA, shared insights on the recent bond auction and the impact of liquidity on T-bills in a recent interview with CNBC Africa. The bond auction results are yet to be released, but Odusanya noted that previous auctions have seen bond prices closely aligned with secondary market rates. Despite a willingness to borrow more, Nigeria's Debt Management Office (DMO) has been cautious in managing debt service costs, often undersubscribing bond offerings to control funding expenses. As inflation edges up and food prices rise, there is anticipation for higher yields in the fourth quarter. Odusanya highlighted the role of liquidity in driving activity in the T-bills market, which remains more liquid compared to bonds. While inflation has not sparked panic yet, sustained increases could lead to higher CPI and impact investor returns. On the currency front, concerns arise as Nigeria's external reserves decline, oil prices dip below $60 a barrel, and the Naira remains stable around 362 at the Investors and Exporters (I&E) window. Odusanya warned that a further drop in reserves could trigger panic in the FX market, leading to preemptive buying and price volatility. The Central Bank's interventions in various FX windows aim to maintain stability, but the sustained pressure on reserves raises apprehensions. Odusanya also pointed out Angola's decision to halt currency defense, signaling potential challenges for oil-dependent economies. As the oil price trajectory influences currency movements, market participants are closely monitoring developments in Nigeria's FX and fixed income markets.