Nigeria's bearish run comes to a halt

Nigeria's fixed income market experienced a shift as yields fell by about five basis points on average, marking the end of an eight-day bearish run. Despite the bearish third quarter GDP numbers, the market showed little reaction, leading to speculation on investor sentiment. Olalekan Popoola, Head of Financial Markets at Wema Bank, discussed the recent market trends and potential implications. Popoola attributed the recent bearish sentiment to the release of October's inflation rate of 18.3%, which caused a temporary increase in yields at the previous PMA and bond auctions. The subsequent announcement of a 2.24% year-on-year contraction in GDP for Q3 dampened investor confidence, leading to a cautious approach towards fixed income securities. The market's reaction reflected ongoing concerns about economic performance and the potential impact on domestic borrowing. With a growing deficit, the government may look to foreign borrowing to alleviate pressure on the domestic market. Popoola highlighted the importance of addressing FX challenges to attract investor confidence. The upcoming monetary policy committee meeting is anticipated to address key economic issues, including inflation and FX stability. Despite rising inflation and declining GDP, it is unlikely that the MPC will adjust key rates at this time. The focus remains on resolving FX shortages to stimulate economic recovery and attract foreign investment. Amidst debates on potential solutions, such as foreign borrowings and asset sales, the urgency for CBN to adopt innovative strategies to stabilize the FX market has become imperative. Market participants are eagerly awaiting a comprehensive plan to address the lingering FX crisis and restore market confidence.