Market News

By : Helen Oji

The naira depreciated by 0.22 per cent against the dollar at the official foreign exchange market last week amid sustained pressure from rising foreign exchange demand.

The local currency closed at N1,361.4 per dollar at the official market, reflecting weakening sentiment in the FX market despite ongoing efforts by the apex bank to stabilise the naira and support liquidity levels.

However, at the parallel market, the naira appreciated marginally to settle around N1,365/$, indicating a slight improvement in supply conditions in the informal segment of the foreign exchange market.

The development came as Nigeria’s external reserves declined by 0.06 per cent to $48.33 billion.

Analysts noted that persistent debt service obligations, weak oil revenue inflows and foreign investors’ exit also contributed to the pressure on reserves during the week.

The movement in the foreign exchange market coincided with renewed volatility in the global crude oil market as geopolitical tensions in the Middle East intensified following renewed hostilities between Iran and the United States around the Strait of Hormuz.

Market analysts said the persistent uncertainty in the global oil market continues to pose risks to Nigeria’s foreign exchange earnings and fiscal outlook, especially as crude oil receipts remain a major source of dollar inflows into the economy.

A research analyst at Cowry Asset Management Limited, Charles Abuede, said the naira would remain under pressure in the near term amid persistent FX demand, continuous interventions by the apex bank and lingering foreign portfolio outflows.

According to him, stronger oil receipts and improved foreign portfolio inflows could, however, provide some support for the local currency and help stabilise external reserves in the coming weeks.

He also noted that global oil prices are likely to remain highly volatile as geopolitical tensions in the Middle East continue to fuel concerns over possible supply disruptions, although the direction of prices would largely depend on the durability of the Iran-U.S. ceasefire arrangement, OPEC+ production decisions and the pace of global economic recovery.

Meanwhile, activities in the fixed income market remained bullish during the week as investors continued to increase demand for treasury bills and other short-term government securities amid prevailing macroeconomic uncertainty and elevated yields.

The Nigerian interbank treasury true yield curve trended largely downward across most maturities during the week, reflecting sustained buying interest by investors. Yields on the one-month, three-month and 12-month tenors declined to 15.84 per cent, 16.09 per cent and 18.92 per cent, respectively, although the six-month tenor rose slightly by 17 basis points.

Consequently, average secondary market treasury bill yields declined by four basis points to 17.51 per cent as investors continued to position aggressively across maturities in expectation of sustained high returns in the fixed income market.

Investor appetite also remained exceptionally strong at the Nigerian treasury bills auction conducted by the Debt Management Office (DMO) during the week, with total subscriptions rising to N2.4 trillion compared to the N700 billion offer, representing an oversubscription rate of 3.4 times.

Despite the strong demand, final allotments settled at N731.8 billion, while stop rates on the 182-day and 364-day instruments eased marginally to 16.14 per cent and 16.15 per cent, respectively, further reinforcing bullish sentiment across the fixed income market.

Similarly, the Central Bank of Nigeria’s Open Market Operations auctions attracted overwhelming investor demand during the week, underscoring the sustained appetite for short-dated risk-free instruments amid excess liquidity in the financial system.

At the apex bank’s Monday OMO auction, the eight-day bill recorded subscriptions worth N1.07 trillion against the N300 billion offered, translating to an oversubscription rate of 3.6 times, while the 134-day tenor attracted N640.1 billion in subscriptions against the same offer size.

The trend persisted at the CBN’s Thursday OMO auction, where total subscriptions rose to N1.64 trillion compared to the N600 billion offered across the 33-day, 75-day and 96-day maturities. Demand was largely concentrated on the 33-day and 96-day instruments, which recorded oversubscription rates of 3.4 times and 4.6 times, respectively.