Beware the January Rally

Beware the January Rally

Another January, another rally. Eight of the past 12 years has seen a rally during January. In seven out of eight of those occasions, there was a point, later in the year, when it was possible to buy the market more cheaply. With very few exceptions, it does not pay to chase a January rally. Proshare Nigeria Pvt. Ltd. FX

Last week, the exchange rate at the Investors and Exporters Window (I&E Window) strengthened by 4.57% to close at N416.00/US$1, rebounding from the slump the week before. Elsewhere, the continued interventions of the Central Bank of Nigeria in the FX markets brought about a further, albeit modest, decline in its foreign exchange (FX) reserves by 0.05% on the week to US$40.50bn. However, the CBN’s position remains strong as the level of FX reserves remains high in the long-term context. Hence, as liquidity rises in the official FX markets, it seems possible that stability will be maintained in the I&E and NAFEX rates in the near term.

Bonds & T-bills

Last week, activity in the Federal Government of Nigeria (FGN) bond secondary market was bearish. The average benchmark yield for bonds rose by 4bps to 11.59%. Notably, the yield on the 10-year (+1bp to 12.61%) bond expanded while the yields on the 3-year (-3bps to 9.11%) and 7-year (-10bps to 12.33%) bonds tightened. We reiterate our expectation that a future rise in bond yields is unlikely to be sharp as the monetary authorities appear content with 2021’s economic and monetary outcomes and are likely concerned with the government’s cost of servicing debt while awaiting clarity on the FG’s domestic borrowing plan for 2022.

Trading in the Treasury Bill (T-Bill) secondary market was mixed, as the average benchmark yield for T-bills fell by a marginal 1bp to 4.42%. The yield on the 321-day T-bill was down by 1bp to close at 5.23%. This week, the Debt Management Office (DMO) is expected to roll over N77.60bn (US$186.54m) worth of maturing bills at the primary auction. Elsewhere, the average yield for OMO bills fell by 1bp to 5.49%; the yield on the 270-day OMO bill stayed flat at 5.52%. At the OMO auction, the Central Bank of Nigeria (CBN) sold N50bn worth of bills and maintained stop rates across the three tenors.


Last week, the price of Brent rose by 5.10%, its third consecutive weekly gain, to US$81.75/bbl – the highest level since […]

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