Nigerian foreign exchange and fixed income watch

In the wake of a surge in system liquidity and positive trading at the bond market, traders in Nigeria are optimistic about the market's performance. Oluwatosin Ayanfalu, Fixed Income Broker at Zedcrest Capital, provided insight into the trading activities in Nigeria's fixed income and forex market. Yesterday, the market exhibited bullish behavior with strong activity on the treasury bill side. A hefty maturity of approximately 75 billion Naira matured without a corresponding auction to absorb the liquidity, leading to a surge in available funds. This was further amplified by recent payments totaling about 230 billion Naira, creating additional liquidity in the market. Consequently, the yields on treasury bills plummeted from the previous day's levels, with bills now trading at around 14.5 percent. As a result of this increased liquidity and demand, the bond market also witnessed some activity. Notably, the market seemed to react positively to the results of Wednesday's bond auction, which revealed unmet bids amounting to about 70 billion Naira. The auction included new bond issues for the 2035 and 2050 maturities, attracting considerable demand primarily in the mid-end of the yield curve. Investors, however, are displaying a preference for shorter durations as they aim to mitigate risks amidst global market uncertainties. On the forex front, the Naira continues to face pressure, trading at 380 to the US dollar in the parallel market. The ongoing shutdown in various states, such as Lagos, has led to a halt in the Central Bank's regular cash injections to Bureau de Change operators, resulting in a shortage of supply. This supply-demand imbalance has pushed exchange rates upward, with some rates touching 400 Naira to the dollar. The scarcity of foreign currency is also prevalent in the interbank market, where banks are scrambling to meet clients' dollar demands, indicating persistent pressure on the Naira despite the CBN's interventions. Ayanfalu emphasized the challenges posed by the current market conditions but expressed optimism that the increased liquidity and trading activity bode well for the market's resilience and future performance.