Parthian: Inflows to ease liquidity in Nigeria's fixed income

Analysts at Partium Partners have highlighted the challenges facing Nigeria's fixed income market, noting that the level of inflows has been limited due to tight liquidity conditions. However, they foresee a potential boost in liquidity in September with an expected influx of about 300 billion naira in coupon payments and OMO maturities. Ronke Akinyemi, the Assistant Vice President of Global Markets at Partium Partners, shared insights in a recent interview with CNBC Africa. The discussion covered various aspects affecting the market, including recent trends in the Treasury Bills primary market auction and the interest rate environment. The Treasury Bills auction that took place recently showed higher closings, with the 91-day and 182-day tenors recording a 50 basis points increase, while the 364-day tenor rose from 7.45% to 8.5%. Despite this, sentiments in the bond market remained mixed, with a slightly bullish outlook following coupon payments on the sovereign notes. Akinyemi noted that the interest rate movement in the market was influenced by higher rates on savings accounts and bank placements, prompting investors to demand better yields from the government. She also addressed the participation of Pension Fund Administrators (PFAs) in the market, highlighting their dominance in recent years, particularly in the primary market space. Akinyemi attributed their active involvement to regulatory changes introduced earlier in the year, which incentivized PFAs to seek higher returns through auctions. While Foreign Portfolio Investments (FPIs) have seen a decline in market participation, PFAs have remained steadfast, driving activity primarily in the mid to long end of the yield curve. In terms of liquidity, Akinyemi discussed the anticipated inflows, noting that around 950 billion naira in FPI inflows is expected to enter the market by the end of the week or early next week. Additionally, the upcoming month is projected to witness improved liquidity, supported by the expected 300 billion naira from OMO maturities and coupon payments. Despite recent liquidity constraints, the market is poised for a potential respite in the coming weeks. The discussion also touched on currency dynamics, with Akinyemi highlighting the devaluation of the Naira against major currencies. She explained that the pressure on the Naira is likely to persist in the medium term, driven by demand outweighing supply. Concerns about inflation and interest rates were also addressed, with expectations of a further increase in rates to counter rising inflation levels in the market. As for FX reserves, Akinyemi suggested a continued decline in reserves while emphasizing the Central Bank's efforts to support the Naira. The outlook remains challenging, with supply constraints and persistent demand contributing to a delicate balance in the foreign exchange market. Overall, the assessment provided by Parthian Partners underscores the complex interplay of factors shaping Nigeria's fixed income and currency markets, highlighting the need for strategic measures to navigate the evolving landscape.