Overseas portfolio traders are sustaining robust curiosity in Nigerian short-term debt devices, significantly the Central Bank of Nigeria’s (CBN) Open Market Operation (OMO) payments, regardless of the latest downward adjustment in coverage charges.
Market knowledge present that investor urge for food remained sturdy throughout the CBN’s most up-to-date public sale, the place the apex bank bought ₦1.4 trillion value of 249-day OMO payments at a yield of 19.89%.
The sale was closely subscribed though yields have moderated in comparison with earlier within the 12 months.
Analysts attribute the continued demand to Nigeria’s excessive actual yields and the relative stability of the naira, which collectively have made naira-denominated debt among the many most tasty in rising markets.
“Even with gradual financial easing, Nigerian securities proceed to supply superior carry returns,” stated a London-based rising markets strategist, noting that overseas traders view Nigeria’s fixed-income area as one of many few providing double-digit yields supported by exchange-rate stability.
The CBN, which reduce its benchmark Financial Coverage Charge (MPR) final month for the primary time in 5 years, has been deliberate in pacing its easing cycle.
Policymakers stay cautious as inflation, although easing, continues to be elevated. The inflation charge dropped to 18% in September, the primary studying under 20% in three years.
Regardless of considerations that falling yields may discourage capital inflows, market sentiment stays constructive. Demand for one-year Treasury Payments and OMO devices has remained agency, with September’s T-Invoice public sale oversubscribed by greater than two occasions, underscoring overseas traders’ continued confidence.
In line with monetary analysts, the CBN’s skill to maintain high-yield devices whereas conserving the naira secure is a key driver of ongoing curiosity. “So long as the central bank maintains adequate OMO provide, the naira carry commerce stays worthwhile,” stated one other funding strategist.
Nigeria’s local-currency bonds have outperformed a lot of their rising market friends this 12 months, with returns up 31% year-to-date, in keeping with Bloomberg’s EM Native Foreign money Authorities Index.
The positive aspects have come at the same time as short-term yields have softened since August, when similar-tenor payments traded almost 400 foundation factors greater.
Market watchers warn, nevertheless, {that a} discount in OMO issuance or extra liquidity may compress yields additional, narrowing alternatives for traders searching for excessive returns.
For now, Nigeria’s fixed-income market continues to learn from overseas inflows which might be serving to to help the native foreign money and deepen secondary market liquidity.
With inflation trending downward and overseas participation nonetheless robust, the CBN’s cautious strategy to easing seems to be sustaining the fragile stability between stimulating progress and preserving investor confidence in Nigeria’s monetary markets.
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