Last week’s plunge in oil price typified by the weakening of the local currency may have heightened the likelihood of foreign portfolios investors’ exit from the fixed income market with a massive sell-off of their holdings.
Price of Brent Oil Nigeria’s key revenue and foreign exchange source dropped to $30.55 per barrel today from its highs to about $72 in January, threatening the country’s 2020 budget funding as well as meeting demands for foreign exchange by importers and foreign investors.
Specifically, the 5-year, 14.5% FGN July 2021 paper lost N1.87, while the yield rose to 7.35% from 6.08%; the 7-year, 13.53% FGN March 2025 note lost N4.52, while the yield rose to 11.34% from 10.23%; the 10-year 16.29% FGN March 2027 debt lost N17.92 while the yield rose to 14.05% from 10.6%; and the 20-year 16.25% FGN April 2037 note lost N15.03 while the yield rose to 12.18% from 10.62%
Sell-offs by Foreign Portfolio Investors to persist, as the bond and Nigeria’s treasury bills sell-offs by Foreign Portfolio Investors, are expected to continue.
Most of the Foreign Portfolio Investors, who want to go have already gone though some of them are trapped in the market due to the unavailability of dollars.
We expect foreign investor-led selloffs to persist in the OMO secondary market amidst continued Coronavirus worries and lower oil prices. Devaluation fever notwithstanding the statement from the CBN, analysts at Cowry Assets Management Limited, a Lagos based investment house, stressed that fears of Naira devaluation amidst further depreciation in the open market would persist due to a sustained low price range in the crude oil market.
They stated, “In the new week, we expect depreciation of the Naira against the dollar across the market segments against the backdrop of the declining crude oil price. “We expect OTC (Over-The-Counter) bond prices to depreciate (and yields to rise) as the fear of local currency devaluation at the official window becomes pronounced amid Naira depreciation at the I&E window.”
Also projecting further Naira depreciation in the parallel market in spite of CBN’s intervention, analysts at Afrinvest explained that they expected the CBN to support the Naira through FX intervention, although concerns about possible devaluation could widen the parallel market premium.
