
Video Player is loading.
Reviewing Nigeria’s fixed income & FX space
Overnight lending rate expanded by 83 basis points to 3.8 per cent as the Central Bank of Nigeria mopped up Thursday's inflow of OMO bills. Ebenezer Alasi, Fixed Income Analyst at Access Bank joins CNBC Africa for more.
Fri, 13 Apr 2018 08:44:34 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Largely bullish sentiments dominate Nigeria's fixed income market, fueled by high liquidity levels and reduced rates across treasury bills and bonds.
- Investors welcome the decrease in inflation to 13.3% from 14.3%, positioning the market for a positive real return despite muted immediate reactions.
- Anticipation of election spending later in the year could impact yields, with rates expected to hold above 12% while market prepares for increased demand and potential dips to 11.75%.
Trading in Nigeria's fixed income market has been characterized by bullish sentiments this week, with significant buying activities driven by high liquidity in the money market. Ebenezer Alasi, Fixed Income Analyst at Access Bank, highlighted the positive trend in the market, noting that the average liquidity was around 560 billion Naira, peaking at 595 billion Naira due to the absence of OMO (Open Market Operations) issuance by the Central Bank. This influx of liquidity led to a decline in rates across the treasury bill and bond segments, with rates decreasing by about 15 basis points overall. Despite a substantial volume of about 500 billion Naira leaving the market, the abundance of liquidity, with around 476 billion Naira maturing into the system, kept the market buoyant with approximately 400 billion Naira in liquidity. Investors have been optimistic about the market's performance, particularly as inflation dropped to 13.3% from 14.3%, inching closer to the Central Bank's target. This marked the first time inflation fell below the 14% threshold, offering a positive real return for investors. However, the market response to the inflation figures was relatively muted as analysts had already factored in the anticipated drop. Looking ahead, analysts expect inflation to continue its downward trajectory. Despite this positive outlook, there are concerns that election spending later this year may temporarily halt the decline in inflation rates. The anticipation of this event could impact yields in the market, with expectations that rates may not drop below 12%. Nevertheless, the market is bracing for increased demand, as evidenced by the significant interest in the OMO auction and the anticipation of lower rates reaching levels around 11.95% to 11.75%. Regarding the Central Bank's monetary policy activities, Alasi highlighted the recent trend of fewer Open Market Operations (OMO) auctions, with only one auction conducted in the past two weeks following maturities. Looking ahead, a substantial amount of around 334 billion Naira is expected to mature into the system next week, prompting the likelihood of another OMO auction on Thursday. Alasi emphasized that while no OMO auctions are expected at the start of the week due to other liquidity considerations, Thursday is likely to witness renewed OMO activity to manage the excess liquidity in the system. Overall, the market is poised to navigate the evolving landscape with a blend of cautious optimism and strategic planning, as participants brace for potential shifts in yields and liquidity dynamics.