The international financial press is full of the inflation story. What happens if inflation takes root in the US and puts the US equity market into reverse? The question is relevant because the US equity markets have been the default investment for many wealthy individuals for years. Would a fall in US equities drag down the Nigerian market? The answer is, most likely, no; the Nigerian market does not correlate with US or international markets. See pages 2 & 3. 

FX 

Last week, the exchange rate at the Investors and Exporters Window (I&E Window) fell to a record low of N422.07/US$1 before settling at N415.07/US$1 (-0.19% w/w). 

The Central Bank of Nigeria's FX reserves rose by 3.76% to US$39.62bn, the highest level since 5 December 2019. The accretion reflects, in our view, the US$3.50bn International Monetary Fund's (IMF) Special Drawing Right (SDR) allocation to Nigeria and the FGN’s issues of US$4.00bn in Eurobonds last month. Nevertheless, FX turnover on the official markets remains low in comparison with levels seen in previous years. Our view remains that there may be continued pressure on the official and parallel exchange rates if the CBN does not increase supply. 

BONDS & T-BILLS 

Last week, activity in the Federal Government of Nigeria (FGN) bond secondary market was mixed, as market players remained on the sidelines awaiting further clarity on the direction of yields. The average benchmark yield for bonds fell marginally (-1bp) to 11.33%. On benchmark notes, the yield of the 10-year (-3bps to 11.97%), 7-year (-4bps to 11.71%), and 3-year (-2bps to 9.20%) FGN Nairadenominated bonds all tightened, slightly. On Wednesday, the Debt Management Office (DMO) is due to offer N150bn (US$365mn) worth of instruments through re-openings of the January 2026, April 2037 and March 2050 bonds at the primary auction. Nevertheless, we reiterate our expectation that a future rise in bond yields, if any, is unlikely to be sharp over the coming months due to unaggressive borrowing as the DMO manages its debt service costs.

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