Oladipo Ajayi: Middle East tensions are sustaining Nigeria’s high bond yields

HEAD of Fixed Income at Chapel Hill Denham, Mr Oladipo Ajayi, says persistent geopolitical tensions in the Middle East are preventing Nigerian bond yields from easing, despite expectations that rates may moderate later in the year.

Speaking during an interview on ARISE News after the decision of the Monetary Policy Committee (MPC) to retain key monetary policy parameters, Ajayi noted that renewed inflation fears tied to global developments have changed the direction earlier anticipated by investors.

According to him, markets had initially expected the Central Bank of Nigeria (CBN) to begin loosening monetary conditions earlier in 2026 before fresh geopolitical risks triggered concerns over inflation and energy prices.

He explained that the uncertainty created by the Middle East crisis has continued to influence investor sentiment across Nigeria’s fixed income market, keeping yields elevated.

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Ajayi stated that the MPC adopted a cautious stance because aggressive policy adjustments could worsen market uncertainty.

“It would be premature for the MPC to actually raise rates,” he said. The fixed income analyst explained that investors remain highly sensitive to inflation trends, liquidity conditions and developments in the global energy market, particularly as tensions in the Middle East continue to threaten oil price stability.

According to him, the inflationary impact of the crisis has made investors more cautious about locking funds into long-term debt instruments.

“The market is currently not so much in a haste to buy bonds at this level,” he stated.

Ajayi pointed to recent bond auction results as evidence that investors are demanding better returns before committing capital to longer-duration securities.

“Markets expected to get a better return,” he said.

He added that many market participants are currently favouring short-term treasury instruments because uncertainty over future inflation and monetary policy direction remains high.

“When there’s no clarity in the market, people stay at the short end of the curve,” Ajayi stated.

According to him, investors are deliberately avoiding longer-tenor bonds while waiting for clearer signals on inflation moderation and interest rate direction.

“There’s still an underlying fear that the market is holding,” he said.

Ajayi also disclosed that strong liquidity levels within the financial system are helping prevent a sharper surge in yields despite the prevailing inflationary pressure.

“There’s a concentrated high level of liquidity in the system,” he stated.

He explained that the liquidity management measures implemented by the CBN have helped stabilise the bond market and limit aggressive upward movement in yields.

“We are not seeing yield in the bond market jump,” he said.

On the external debt market, Ajayi said Nigeria’s Eurobond market continues to attract foreign investors searching for dollar-denominated assets and high-yield opportunities amid global uncertainty.

“Nigeria is more like a destination for most of these foreign guys,” he stated.

According to him, global investors are increasingly shifting attention toward emerging market debt instruments that offer attractive returns in dollar terms.

“Everybody’s shopping for instruments that are dollar-denominated,” he said.

Ajayi noted that trading activity in Nigeria’s Eurobond market remains strong, reflecting sustained foreign appetite for Nigerian sovereign debt despite concerns surrounding debt sustainability and global financial conditions.

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“The market is extremely liquid,” he stated.

Looking ahead, the analyst projected that bond yields could gradually moderate later in the year if inflationary pressure eases and geopolitical tensions in the Middle East begin to subside.

“In the medium to long term, we’ll likely see yield actually moderate,” he said.

He explained that a reduction in global tensions could ease pressure on oil prices and inflation, creating room for more stable monetary conditions and possible future rate cuts.

“We may likely see inflation continue to decelerate,” Ajayi stated.

He concluded that while Nigeria’s fixed income market remains under pressure from inflation concerns and geopolitical uncertainty, especially developments in the Middle East, yields could begin to decline gradually if global conditions improve and inflation slows in the coming months.