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CBN intervenes as bond prices fall

By on November 6, 2014

Government bonds fell on Tuesday amid withdrawal from Nigerian assets by foreign investors, which prompted the Central Bank of Nigeria to sell dollars to support the naira.

The naira has come under pressure in the past two months from falling global oil prices, dampening appetite for assets in the Africa’s biggest economy and chief oil exporter.

Despite the intervention of the CBN to prop up its value, the naira has lost 4.3 per cent since January this year.

Concerns about the naira amid falling global oil prices also triggered a drop in bond prices as investors demanded higher returns to hold Nigerian bonds.

An analyst at Ecobank, Mr. Dolapo Oni, told our correspondent, “The current lower oil prices are likely to strengthen negative sentiments around the naira, the Nigerian Stock Exchange and investment in oil and gas exploration activities. We have already seen major sell-off in the capital markets today (Tuesday) and we could see some pressure on the naira as well, reinforced by the CBN mopping up funds.”

Foreign investors pulled more money out of the stock market on Tuesday, mainly in the relatively liquid banking and cement sectors, as the oil price fell three per cent to a four-year low of just above $82 a barrel and as Nigerian companies reported mixed results, according to Reuters.

The naira, which had earlier lost 0.3 per cent intraday against the US currency as funds repatriated cash, recovered some ground after the CBN intervened to close down 0.1 per cent at 165.90 to the dollar, dealers said.

“Stocks failed to sustain the recovery recorded in the previous week … as companies posted mixed performance in the third quarter,” one stockbroker told Reuters.

The yield on the benchmark 10-year bond rose 7 basis point to 12.70 per cent on Tuesday, dealers said.

Two dealers said that the interbank currency market had seen strong demand for dollars amid tight supply from offshore investors selling assets and repatriating funds.

The local unit of Italian oil firm Eni sold $25m alongside the CBN to support the naira.

The naira fell against the dollar on the interbank market on Monday, which was attributed largely to tight supplies of the dollar. The currency closed at 165.75 to the dollar, compared with 165.65 on Friday.