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Headed for higher rates?

February 13, 2024
Nigeria weekly updates

Last week’s T-bill auction achieved higher rates, with the yield for 1-year reaching 23.4% and settling at 20.60% in the market. We are in for a period of high yields, but unless they visibly work (e.g. attract foreign investors, reduce inflation) they may not be around all year. We have no feature on this topic this week but shall return to it next.


The Naira fell 2.38% against the US dollar closing at ₦1,468.97/US$ at the NAFEM window last week. In the parallel market, the exchange rate at one point reached ₦1,505/US$1 but eventually settled at ₦1,500/US$1, losing 4.33%. The larger decline in the parallel market created a 2.11% gap between the street and the official market. The CBN’s published gross external reserves declined 0.71% to close the week at US$33.12bn.

The impact of the CBN’s directive to banks to sell down part of their net long US dollar positions seemed to have been short-lived, even if turnover in the foreign exchange markets did improve significantly for a while. The gap between the parallel and the NAFEM market has reappeared, however. This further reinforces the need to improve the supply of US dollars into the market and we wait to see whether the reforms attract foreign portfolio investors and encourage other flows.


The secondary fixed-income market maintained its bearish mood last week as investors sought to take advantage of attractive yields available in primary market auctions. In the Treasury bills market, average yields rose to 11.17% pa (5.46% the previous week), driven by sell-offs across the yield spectrum. Average yields at the short-end added 572bps to 11.17%, the mid-point gained 581bps to 14.32%, while yields at the long-end rose 591bps to 18.48%.

In the FGN bond market, yields rose at a slower pace as average yields climbed by 72bps pa to 15.49%. Average yields at the short-end, mid-point, and long-end of the yield curve gained 86bps, 71bps, and 57bps to 14.38%, 15.53%, and 16.72%, respectively.

At the primary market auction for Treasury bills which took place mid-week, the CBN offered ₦1.00tn across the 91-day, 182-day, and 365-day maturities. The offer amount was ₦963.96bn higher than at the previous auction. Demand, however, rose to match, almost doubling the offer size, reaching ₦1.98tn (bid-to-offer of 1.98x). Despite the demand level, stop rates rose significantly across the trio of maturities, reaching 17.24%, 18.00%, and 19.00% (vs 5.00%, 7.15%, and 11.54%), respectively.

ICYMI: How big was the January equity rally?

Are we back to higher rates? It seems very likely that we will see, on average, much higher T-bill rates than last year, which is good news for savers. The bigger question is whether we will see 1-year T-bill rates above the 20%-mark, as we saw last week. It is possible, especially if the new approach is successful in attracting foreign investors.


Last week, the Brent crude price gained 6.28%, to close at US$82.19/bbl. This brought the year-to-date average price US$79.20/bbl which is 3.63% lower than the average of US$82.19/bbl in 2023. Geopolitical tensions outweighed demand concerns. We still expect that the average price this year will exceed the US$77.96/bbl assumption in Nigeria’s 2024 budget.


Last week, the NGX Exchange All-Share Index lost 2.45% to close at 101,858.37 points, bringing the year-to-date return to 36.22%. Sell-offs in Eterna (-18.78%), Abbey Mortgage Bank (-18.39%), and Unity Bank (-17.79%) outweighed gains in Meyer (+60.70%), Geregu Power (+19.00%) and Cornerstone Insurance (+17.37%). The market is experiencing its first weekly correction following the usual January rally, as investors start taking profits.

All the indices closed bearish. The NGX Banking index (-6.86%) topped the laggards list, followed by the NGX Pension index (-4.56%), the NGX Industrial Goods index (-4.16%), the NGX Insurance index (-1.48%), the NGX 30 index (-2.47%), the NGX Oil and Gas index (-0.40%) and NGX Consumer Goods index (-0.14%). The Model Equity Portfolio will return next week.

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The analysts and Head of Research have prepared the report independently, using publicly available information. We believe the information is accurate but have not independently verified it. We intend the report for client use. It should not be considered as soliciting to buy or sell securities.

No liability is accepted for errors or omissions. And readers should conduct their own evaluations and consult with financial advisers before making investment decisions.

This report is not intended for individual investors and should not be distributed where prohibited by law or regulations.

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