By Evans CHARLES InvestAdvocate 

Lagos (INVESTADVOCATE)-The Nigerian financial markets witnessed a week of shifting dynamics as liquidity conditions and investor sentiment evolved in response to key macroeconomic triggers. 

With an influx of N1.03 trillion from OMO maturities expected to bolster system liquidity this week, the overnight (OVN) rate is projected to moderate from its current elevated levels.

The OVN rate saw a marginal 3bps increase to 32.8% last week, despite inflows from FGN bond coupon payments (N904.93 billion) and OMO maturities (N10.00 billion). However, overall system liquidity remained constrained, settling at a net short position of N1.08 trillion, unchanged from the previous week.

The Treasury bills secondary market rallied during the review week, driven by a confluence of factors, including:

• A lower-than-expected inflation rate of 24.48% y/y for January, offering relief to investors.

• The Monetary Policy Committee’s (MPC) decision to hold rates, providing stability to fixed income instruments.

• Heightened demand from market participants seeking to cover unmet bids from the NTB Primary Market Auction (PMA).

As a result, the average yield tumbled 174bps to 22.4%. Across market segments, yields declined by 189bps to 20.2% in the NTB segment and by 145bps to 25.0% in the OMO segment.

At Wednesday’s NTB auction, the Debt Management Office (DMO) had offered N700 billion in 91-day, 182-day, and 364-day bills. Despite a lower subscription of N2.41 trillion (previous: N3.22 trillion), the auction recorded a solid bid-to-offer ratio of 3.4x. The DMO ultimately allotted N774.13 billion, with stop rates easing across tenors—17.00% (91D), 18.00% (182D), and 18.43% (364D).

“Looking ahead, we expect further downward repricing of yields, bolstered by liquidity inflows and sustained market optimism,” analysts at Lagos based Cordros Capital projected.

The bullish trend extended to the FGN bond secondary market as investors reacted positively to the lower inflation figures. The average bond yield declined by 78bps to 19.4%, with significant buying interest across the curve.

• Short-term bonds saw a 59bps yield decline, led by demand for the MAR-2027 (-165bps).

• Mid-tenor bonds posted the steepest decline of 90bps, driven by interest in the FEB-2031 (-208bps).

• Long-dated bonds also benefited from the rally, with yields compressing by 47bps, notably in the JUN-2038 (-90bps). 

According to the analysts, bond market direction this week will hinge on the outcome of Monday’s FGN bond auction, where the DMO is set to reissue APR-2029 and FEB-2031 bonds, offering a total of N350 billion.

In the currency markets, the naira strengthened by 0.6% to N1,501.08/USD at the Nigerian Foreign Exchange Market (NFEM), supported by the CBN’s USD66.80 million intervention. However, FX reserves continued their downward trajectory, slipping by USD300.11 million w/w to USD38.74 billion, marking the sixth consecutive week of decline.

In the forwards market, the naira depreciated across tenors:

• 1-month forward: +0.8% to N1,541.90/USD

• 3-month forward: +1.2% to N1,614.50/USD

• 6-month forward: +2.0% to N1,715.15/USD

• 1-year forward: +2.2% to N1,906.24/USD