Fixed-Income Rally Reshapes Nigeria’s FX Market
Foreign Capital Returns to Nigeria
NIGERIA’S foreign exchange market opened 2026 on firmer ground, buoyed by a sharp resurgence in offshore portfolio investment that has strengthened liquidity and steadied the naira.
Latest data from FMDQ Securities Exchange show total FX supply rose 7 percent month-on-month to $3.0 billion, marking a second consecutive month of recovery. Analysts say the rebound reflects renewed foreign appetite for Nigerian fixed-income assets, driven by elevated domestic yields.
Portfolio inflows more than doubled in the review month, jumping 151 percent to $1.6 billion. This segment accounted for more than half of total FX supply, underscoring Nigeria’s re-emergence as a high-yield destination within frontier markets.
Fixed Income Dominates
Nearly 98 percent of foreign portfolio inflows — approximately $1.5 billion — went into treasury bills, government bonds and other debt instruments. In contrast, equities attracted only $38.7 million, highlighting investor preference for predictable returns amid global uncertainty.
Market participants attribute the inflow wave to Nigeria’s tight monetary stance, which has kept interest rates elevated in a bid to curb inflation and stabilise the currency. With advanced economies gradually easing policy, Nigeria’s yield differential has become increasingly attractive to carry-trade investors.
Dealers report that stronger liquidity has reduced exchange-rate volatility, allowing the naira to trade more steadily and lowering the need for aggressive official intervention.
Central Bank Steps Back
A notable shift in the latest data is the sharp reduction in FX injections by the Central Bank of Nigeria (CBN). Official intervention fell to $34 million, compared with $654 million in the previous month.
Analysts interpret this decline as a sign that the market is increasingly supported by autonomous inflows rather than central bank supply. Reduced intervention also eases pressure on external reserves, giving policymakers greater flexibility.
Mixed Signals from Other Segments
While portfolio inflows surged, longer-term foreign direct investment (FDI) remained subdued, edging up slightly to $50.3 million. Economists say this reflects persistent structural challenges, including infrastructure gaps and regulatory uncertainty.
Exporters continued to provide the largest share of domestic FX, though inflows from the segment declined 15 percent to $582 million. Non-bank corporates recorded a modest increase to $430.4 million, while inflows from local individuals dropped sharply.
Sustainability Questions
The dominance of portfolio flows highlights both opportunity and vulnerability. While “hot money” inflows boost liquidity and stabilise the currency in the short term, they can reverse quickly in response to global risk shifts.
Analysts argue that sustaining confidence will depend on consistent FX reform, transparency and careful calibration of monetary policy. A gradual easing cycle could support growth without undermining Nigeria’s yield advantage.
For now, the early-year data suggest that offshore capital is returning, market liquidity is improving, and the naira has found firmer footing — offering cautious optimism for policymakers navigating a historically volatile FX landscape.
