DMO Needs to Hike Rates to Keep Foreign Investors – Investment Firm
With the latest round of foreign portfolio investors rotating out of naira-priced assets, Nigeria’s top investment banking firm has advised the Debt Office to increase spot rates and fully roll over maturing bills.
Naira yields have fallen, thus reducing offshore investors’ initial excitement to bring a flood of US dollars into the Nigerian debt market. The fixed income market situation worsened in the recent past week as foreign investors sought flight to safety amidst the US-initiated global trade isolation policy.
Much of the worry about Nigeria is about survival, growth, and macroeconomic stability as prices of crude oil came under pressure, while the market anticipated lower government revenue driven by internal and external forces.
A higher tariff on Nigeria’s exports is a growth constraint for a country that is already struggling to drive toward its economic growth target after amidst reform-induced price inflation.
Nigeria’s fiscal worries will make the Debt Management Office (DMO) aggressive on local borrowing, investment banking analysts at CardinalStone Limited said in its fixed income market update.
In its latest update, the investment firm said the naira fixed-income market bucked the trend witnessed in January and February. The macro update noted that yields scaled marginally by 7 bps in March 2025 after slowing down in the early with analysts warning that the trend could trigger investors rotating out of the naira assets.
At the start of March, fixed-income yields, especially at the short end of the curve, moderated, reflecting the pattern witnessed in the prior months, CardinalStone told investors in the latest update.
However, investment banking analysts stated that the yield deceleration was halted due to strained system liquidity and the re-adjustment of the Nigerian Treasury bills auction calendar.
On the latter, the investment firm said in its note that contrary to DMO’s initial plan to borrow N1.90 trillion (net repayment of N742.10 billion) in March, they ended up increasing targeted borrowings to N2.82 trillion (net borrowing of N179.73 billion) and raising the number of proposed auctions in the period.
“To our minds, the DMO needed to fully roll over maturing instruments and increase stop rates in a bid to retain foreign portfolio investors (FPI) funds, whose excitement in Naira assets waned in the period due to global risk-off sentiments amid volatile oil prices”, CardinalStone said.
Analysts said the unexpected change in the DMO’s issuance plan may have also signalled to the market that the government’s financing needs may be higher than anticipated following the recent upward revision of the FGN’s 2025 spending plans to N54.9 trillion from the initial N49.7 trillion.
It said the period’s strained liquidity also added another layer of pressure on fixed income yields, as banks queued up at the CBN discount window, net borrowing an average of N570.00 billion.
“In our view, fiscal worries stemming from volatile oil prices and weaker oil production are likely to make the DMO aggressive on borrowings”, the firm said in the fixed income market update.
The Minister of Finance has already stated that the government is going back to the drawing board to evaluate its budget assumptions in light of global developments, analysts noted. #DMO Needs to Hike Rates to Keep Foreign Investors – Investment Firm FG, CIMEC Sign $328.8m Contract to Boost Power Supply
