U.S. investment bank J.P. Morgan has urged investors to exit long positions in Nigerian Open Market Operation (OMO) bills, warning that global risks—driven by falling oil prices and renewed trade tensions—could deepen Nigeria’s macroeconomic vulnerabilities.
In a research note dated April 9, 2025 seen by Nairametrics, titled “Frontier Local Markets Strategy: Reducing risk further,” the bank advised clients to close their positions in Nigerian T-bills as Brent crude oil approaches sub-$60 levels.
J.P. Morgan, which had previously backed Nigeria’s carry trade for its high yield and relative stability, has now shifted its stance, citing a changing global environment worsened by former President Donald Trump’s re-emergence as a leading candidate in the U.S. elections and his push for sweeping global tariffs.
Nigeria’s central bank had earlier in the month assured stakeholders that it expected an uptick in external reserves, after it declared a net of $23 billion
- “We anticipate a steady uptick in reserves, underpinned by improved oil production levels, and a more supporting export growth environment that is expected to boost non-oil FX earnings and diversify external inflows.”
It also recently declared a balance of payment surplus of $6.83 billion at the end of 2024, “signalling economic resurgence” and citing ongoing monetary policy reforms.
Oil below $60 threatens Nigeria’s external balance
However, JP Morgan noted that if oil prices remain below $60 per barrel—the estimated breakeven price for Nigeria—it could push Nigeria’s current account back into deficit.
This would place significant pressure on the naira and intensify the demand for dollar assets. J.P. Morgan had earlier forecasted that in such a scenario, the USD/NGN exchange rate could surpass the 1,700/$1 mark. The current exchange rate trades around 1,500/$1, but is highly dependent on foreign inflows.
- “While Nigeria may well avoid a recession itself,” the report stated, “the substantial decline in oil prices below its break-even of US$60/bbl… would push Nigeria’s current account balance into deficit.”
As a result, the bank has called time on one of its “highest conviction” trades in frontier markets.
CBN’s FX interventions ramp up
J.P. Morgan acknowledged the Central Bank of Nigeria’s proactive response in recent weeks, highlighting a 3.6% depreciation in the naira, which it considers relatively moderate.
- The CBN has reportedly sold about $550 million into the market in March to defend the currency, amid rising demand and dwindling supply.
- This trend, the bank warns, could signal increased capital flight, as foreign portfolio investors may see Nigeria as more vulnerable to external shocks—especially if oil revenues decline further.
- J.P. Morgan estimates potential portfolio outflows could total up to $10 billion, although a portion of this may be tied up in private placements or illiquid assets.
The situation reflects a critical reality for Nigeria: the FX market is still heavily reliant on central bank support, and any disruption to CBN dollar inflows—primarily from oil—could create panic in both currency and bond markets.
The CBN has reportedly sold about $550 million into the market in March to defend the currency, amid rising demand and dwindling supply. Nairametrics estimates this at over $1 billion this month.
Local market liquidity falters
The bank also observed that while the FX market has remained relatively stable, Nigeria’s domestic fixed-income market has shown signs of stress.
- Liquidity for OMO and T-bills has been notably weak, with yields rising by as much as 300 basis points in recent weeks.
- This signals reluctance among investors to absorb short-dated government securities, likely due to inflation concerns, foreign outflows, and oil price uncertainty.
- To cushion the market and prevent disorderly price movements, the central bank has been forced to intervene more actively—either by injecting liquidity or participating directly in auctions to ensure bid-cover ratios are met.
What this means for Nigeria
J.P. Morgan’s warning highlights the fragile balance Nigeria is walking in 2025. The country’s reform agenda—particularly the unification of its FX rate and removal of fuel subsidies—had earned it positive attention in global markets last year.
But the combination of falling oil prices and rising geopolitical tensions now threatens to undo much of that progress.
- The government had hoped for increased FX inflows through oil exports and multilateral support. However, with oil prices falling and no clear path to alternative revenue streams, the pressure on fiscal and external balances is likely to grow.
- For investors, the warning is stark: Nigeria’s asset prices are highly sensitive to global conditions, particularly oil.
With Trump’s proposed global tariffs casting a shadow over emerging markets and Brent crude slipping closer to sub-$60, Nigeria’s dollar liquidity and currency stability are under threat.
Despite the near-term risks, J.P. Morgan maintains a medium-term constructive view on Nigeria. The bank believes that Nigeria will continue on its reform path, allowing the exchange rate to find market-clearing levels and reducing its dependence on fuel subsidies.
It also expects the government to rely more on domestic revenue mobilization, including proceeds from the oil sector through the now-commercialized Nigerian National Petroleum Company Limited (NNPC). However, that recovery is contingent on higher oil prices and continued macroeconomic discipline.
The investment bank concluded that the outlook for Nigeria depends largely on how well the country can withstand external shocks and sustain its reform agenda amid global headwinds.
