All eyes on Nigeria’s Forex & fixed income market ahead of MPC

Last week saw a flurry of activities in Nigeria's fixed income and forex markets, keeping investors on their toes. As the markets continue to fluctuate, Dipo Ajayi, Head of Fixed Income and Forex at Chapel Hill Denham, sat down with CNBC Africa to provide insights into the recent trends and what they mean for the future. Ajayi highlighted the significant demand at the long end of the fixed income market, particularly for the 30-year bond, indicating a willingness among investors to take on duration risk. This surge in demand led to a substantial shift in instrument pricing, with yields dropping by almost 40 basis points, showcasing ample liquidity in the market. Investors are seemingly seeking higher returns given the single-digit trading at the short end, prompting a move towards longer-term investments. Ajayi emphasized the impact of the Central Bank of Nigeria's (CBN) policies on market dynamics, with restrictions in the OMO market driving liquidity towards the bond space, driving instrument yields down to 4% in the Nigerian Treasury Bills (NTB) space. The CBN's strategy aims to lower government borrowing costs and reduce debt service, aligning monetary and fiscal policies for improved market stability and investor confidence. Moving onto the foreign exchange (forex) market, Ajayi discussed the initial spike in the Naira's value due to global tensions and subsequent oil price fluctuations. While the oil retreat may alleviate import concerns, the CBN's interventions remain crucial to stabilize the market. With reserves currently standing at $38 billion, Ajayi reassured stakeholders that there is no immediate cause for alarm, especially as the government plans to leverage Eurobonds to bolster reserves further. Despite speculation of a potential devaluation, Ajayi emphasized resilience in the market, with recent liquidity injections signaling healthy investor interest in fixed income and forex opportunities. As the economy navigates challenges, including the impact of global events and domestic policies, Ajayi's expert perspective offers valuable insights for navigating Nigeria's dynamic financial landscape.