Improved Liquidity Spurs Investors Interest in Fixed Income Assets


Tuesday, July 27, 2021 / 6:14 PM / Ottoabasi Abasiekong for WebTV / Header Image Credit: WebTV

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Liquidity in Nigeria's Fixed income market rose significantly for July 2021 as investors reengage domestic financial markets more actively.


Mr. Ebo Ayodeji, Head, Retail Investments at Chapel Hill Denham said this while analyzing the developments in the Nigerian fixed income market.


According to the market maven fixed income buying interest spun upwards in July on the back of a three-month decline in the national domestic headline inflation rate, which fell from 17.83% in May to 17.75% in June 2021.


The market retailer said investors were optimistic that the Central Bank of Nigeria (CBN) would hold the monetary policy rate at 11.5% as it hopes that the countries output (GDP) continues to grow as the inflation drops steadily year on year. With the inflation rate sliding, nominal interest rates are expected to fall causing bond prices to rise.


Ayodeji also noted that the latest Debt Management Office (DMO) bond auction on behalf of the Federal Government showed the preference of investors for long-term bonds.


The financial analyst added, "Investors are expecting that rates may have capped at a level where we will see a decline. This is why investors are locking in early at good rates before a reversal".


Taking a peep at the second half of the year he said the liquidity in the fixed income market would fall in August, while the bond market would be active given the government's signing of a supplementary budget into law by the President.


He noted that the DMO was expected to leverage the Eurobond market, to raise funds for the government. The analyst stressed that the fixed income market rates are not expected to rise at the moment except there is a major shock.


The Monetary Policy Committee (MPC) concluded its 280th meeting and left key monetary policy parameters constant.  This was consistent with analysts' expectations.


The primary reason for freezing monetary policy by the MPC was the existing high double-digit inflation rate and the fragile growth of the economy.


Speaking further the analyst noted that in line with CBN thinking a hold position on interest rates and other monetary policy instruments would stabilize activities in both the fixed income and equities market.

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