Governor of the Central Bank of Nigeria, Olayemi Cardoso, says the apex bank will continue to maintain order in the country’s foreign exchange market. Meanwhile, about 1.18 trillion-naira worth of Treasury Bills are expected to mature this week. Bankole Odusanya, Chief Dealer, Treasury at Polaris Bank, joins CNBC Africa for this discussion.
The Governor of the Central Bank of Nigeria, Olayemi Cardoso, says the apex bank will continue to maintain order in the country’s foreign exchange market. Meanwhile, about 1.18 trillion-naira worth of Treasury Bills are expected to mature this week. Bankole Odusanya, Chief Dealer, Treasury at Polaris Bank, joins me for this discussion. Bankole, thank you so much. Pleasure to have you on the show with us today. Thank you. Well, let's bring us up to speed with what's, I mean, latest updates. Let's start with the Treasury Bills market. 1.81 trillion expected to mature this week. Talk to us about that. Okay. So, in the Treasury market, it's been very busy. In the last four weeks, we've had auctions, which is quite unusual because last week we had an additional injection of securities into the market. We think that's in line with expansion of the budget. Budget initially was planned at 49 trillion, now at 54 trillion. So, as we end the first quarter, we've seen the DMO rack up a lot of cash by issuing instruments. And going into Q2, we expect that there'll be a bond calendar that shows us how much instrument they'll be offering, because currently we've seen that 2035 was issued just once in February. 2029 and 2031 have been the instruments that they've been using, but we think they may change that going into Q2. That's on the bond end. On the Treasury Bills end, we expect a calendar that shows slightly or marginal increase in issuance, I mean, to reflect the amount the government plans to raise. On the other side, the debt management, the Minister of Finance had mentioned that the use of Eurobond is a possibility. Additional Eurobond this year, right? Additional Eurobond issued this year, but we have information today that Sukuk 300 billion will be offered also. Instead or in addition? In addition. We are not sure if it's going to be various instruments or just one, and then we don't know what rate that will come out at. Then it could be seven to ten years, you know, going by what had been issued in the past. So, we are seeing issuance of more instruments, reflective of the expansion, expanded budget going into the year. Was that a good mix? I know they're trying to diversify, and Sukuk bonds I believe have done well in the past. Oh, yes. It's a good mix. They are issuing all the instruments, I mean, that covers the whole market because, you know, there's banks who don't touch the regular federal government instruments. The alternative banks do more of Sukuk, and so those instruments will be available and traded in that, I mean, space. So, basically for bonds, yields range between 19 and 19.99, as well as this week's auction. But for Treasury bills, we've seen a rise in the last one month, and I can just explain how it has moved from 17.8 to 18.6, 19.8, and 19.6. That's interesting because I thought, I mean, the talk has been that we would see that, you know, coming down. It did. It came down in, by the beginning of the month it was down to 17.8, but what happened was that the global markets caused a spook on Sub-Saharan instruments where most FBIs actually sold their assets for cash because of what was happening with tariffs and global markets. And the US Fed, you know, pulled in. And the US markets actually reacted too. We saw some downward pressure in pricing. So, what happened was that FBIs went for safety, sold instruments from 17, I mean, up to 19, but now we've found stability. We've had two auctions at 19.8 and 19.6, so it seems we're settling at 19.5 levels, and that's effective yield 25%, 24%, 25%. We find that attractive, and that will help us keep a stable flow, steady flow of funds into the market because that's very important. On the other hand, exits will mean that there's pressure on the Naira because we have moved within the same period from 14.90 to 15.40, a 15-year movement in the currency. I was going to go then to the Naira. I mean, last we saw 1.15, 32.39, but there's also talk about, I don't know if that's an ongoing conversation, you know, speculators, especially at the parallel market, the CBN governor coming out to say, look, we're going to continue to keep the Naira, you know, stability in the market. Talk to us about that. Okay. Beyond the FBIs that reacted to the market shocks in the US, locally, you know, Dango 3 refineries will be selling products in USD, so most marketers also will be sourcing for their own funds. That is, some would qualify, you know, by way of issuing LCs to import from that free trade zone, but for those that will be dispensing directly on land, buy trucks and all that, they probably will need to seek their own funding. So, that's brought some pressure, speculative pressure to the market, but to be honest, it hasn't really moved away from 15.40, even within, I mean, within the week that we've had the news. So, as we get used to that, I think that supply will continue to improve as we go into the year because our yields are quite attractive and the Decentral Bank has been very active, to be honest, in a very transparent market where you just show your bids for all your customers and by the end of the day, we have not had unmet demand and that's just a fact. That is good to hear. I wanted to quickly take you back to, I mean, borrowing between the DMO and the CBN and what is considered an appropriate pricing for government debt. We know that the CBN, obviously, on the one hand, wants to, you know, keep rates, you know, high to, you know, keep those FBIs coming. The DMO has a responsibility to ensure that the government, you know, borrows in a sustainable, you know, and debt service is sustainable. So, how, what is the balance here, if any? So, at the point when, in February, as we ended February, rates declined so much because there was so much interest locally and FBIs actually tripped in with a lot of funds because our yields were very good. But that also created the gap where holders of OMO or, yeah, OMO instruments and NTB saw space to sell. They saw margin, profitable margin, so they took profit and simply played safe by holding the USD. But now that yields are back at 19 for treasury bills, we expect that bonds, the new issuances, if there are new instruments, will probably trade within 19 and 20 also. It seems that that's the comfortable level where our Naira instruments are incentivised, incentivised holders, you know, from local and foreign markets. So, basically, we are not expecting yields to drop anytime soon. It's going to be expensive and that will be the cost we have to pay. And the DMO just has to deal with that, right? Oh, yes. Right, Bankole, I wish we had more time, but we're going to have to leave it there. Well, thank you so much for bringing us up to speed. Thank you, Esther. Bankole Odusoya, Chief Dealer, Treasury at Polaris Bank.
Theme: Nigeria's Financial Market Resilience Amidst Treasury Bill Maturation and Currency Stability Concerns
The financial market in Nigeria is abuzz with activity as 1.18 trillion naira worth of Treasury Bills are set to mature this week. The Governor of the Central Bank of Nigeria, Olayemi Cardoso, has assured the public that the apex bank will continue to maintain order in the country's foreign exchange market. To shed more light on these developments, Bankole Odusanya, Chief Dealer, Treasury at Polaris Bank, joined CNBC Africa for an insightful discussion. In the Treasury market, recent weeks have been exceptionally busy due to auctions and an influx of securities. This increase in activity is in line with the expansion of the budget, which has grown from an initial plan of 49 trillion naira to 54 trillion naira. As the first quarter comes to a close, the Debt Management Office (DMO) has been issuing a substantial amount of instruments to raise cash. Looking ahead to the second quarter, there is anticipation for a bond calendar that may introduce new instruments such as the 2035 bond, alongside a moderate increase in Treasury Bills issuance. Moreover, the Minister of Finance has hinted at the possibility of issuing additional Eurobonds this year, with reports of a forthcoming 300 billion naira Sukuk issuance. This diverse mix of instruments aims to cater to various investors in the market, providing options for both traditional government securities and alternative bonds like Sukuk. Despite expectations for Treasury Bill rates to decrease, recent market dynamics have led to an increase in yields. Global market fluctuations, particularly in Sub-Saharan instruments, prompted foreign investors to sell assets and seek safer options. This surge in demand caused Treasury Bill rates to rise from 17.8% to 19.6%, stabilizing around the 19.5% mark. While the initial movement was driven by external factors, the market has now found a more balanced footing. In the currency market, the Nigerian Naira has experienced slight fluctuations, moving from 14.90 to 15.40 over a 15-day period. Speculative pressures from local oil marketers sourcing USD for refinery activities have added some strain. However, the Naira has remained relatively stable, thanks to attractive yields in the fixed income market and the active interventions of the Central Bank. Governor Cardoso reaffirmed the bank's commitment to ensuring Naira stability amidst speculative activities. When discussing the borrowing dynamics between the DMO and CBN, the balancing act between attracting foreign investments and managing sustainable debt levels becomes crucial. While February saw a decline in rates due to high local and foreign interest, recent adjustments have positioned Treasury Bill rates at 19% to 20%, enticing investors to participate. The expectation is for these rates to remain steady, creating an environment that benefits both domestic and international investors. In conclusion, the Nigerian financial market is navigating a period of heightened activity and evolving dynamics. While challenges like global market trends and speculative pressures persist, the market players remain resilient. With proactive interventions from regulatory bodies and a diverse mix of investment instruments, the outlook remains optimistic for Nigeria's financial landscape.
"The Nigerian financial market is navigating a period of heightened activity and evolving dynamics. While challenges like global market trends and speculative pressures persist, the market players remain resilient."
['Nigeria', 'financial market', 'Treasury Bills', 'foreign exchange market', 'Central Bank of Nigeria', 'budget expansion']