Naira slides as reserves fall, bond yields edge higher on pre-inflation caution

The naira weakened in both official and parallel markets last week as Nigeria’s foreign exchange reserves fell to a six-month low, while government bond yields rose on investor caution ahead of new inflation data.

At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the naira closed at N1,583.62 per dollar, down 1.7 per cent from the prior week’s N1,556.91/$1. Turnover slipped 8.3 per cent to $823.32 million.

In the parallel market, the currency lost 0.9 per cent, ending at N1,615/$1. The pressure followed a 1.4 per cent drop in external reserves to $33.17 billion, the lowest since January, despite a 15.1 per cent year-on-year gain from $28.83 billion in the same period last year.

Analysts at Cordros Capital noted that sustained FX demand pressures, coupled with a narrower reserves buffer, could keep the naira under pressure in the near term, particularly if dollar supply remains thin.

In the fixed-income market, average yields on Nigerian government bonds climbed 12 basis points to 16.5 per cent, driven by profit-taking and cautious positioning ahead of July inflation figures.

The sell-off was concentrated in short- and mid-tenor maturities, with yields on the MAR-2027 and APR-2032 papers surging 33bps and 46bps respectively. Long-dated bonds held steady.

The midweek Central Bank of Nigeria (CBN) liquidity mop-up, including ₦2.12 trillion in OMO bills and ₦173.25 billion in Treasury bills, tempered some selling pressure, prompting selective buying in mid-tenor bonds such as the FGN 2035s, which saw yields fall 29bps.

Still, late-week trade was muted, with short-end weakness and mild mid-curve repricing dominating flows.

Cordros Capital and AIICO Capital expect yields could ease modestly over the medium term on dovish policy signals and supportive demand-supply conditions, but caution that a sustained drop might spur foreign portfolio outflows, adding to naira headwinds.

Overall, markets closed the week with the naira weaker, reserves lower, and bond yields slightly higher, underscoring investor caution in a liquidity-tight environment with limited primary issuance triggers.