By Charles Abuede
- Market players expect rates in secondary T-Bills market to remain low due to huge money supply as CBN plans resumption of liquidity intervention of OMO worth N103.1bn to hit system
Strong demand impelled lower rate in the money market as
profiteering halts a bullish run in the domestic bonds market
Due to the anticipated strong FX demand coming from lockdown easings across major economies, which may mount pressure on the exchange rate (EXR) in the near term, the naira weakend in the Lagos street market by N6 week on week after opening the week N464/$1 but closed at N470/$1. Also, at the CBN spot rate, it traded flat all week to close at N379/$1. At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate opened at N386.21/$1 and closed at N386.00/$1 unchanged from the prior week. Activity level in the I&E Window fell 22.5 per cent to $561.3 million from $723.9 million recorded in the previous week.
Similarly, at the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts on the naira settled at $9.93 billion, up $19.1 million (+0.2%) from $9.92 billion in the prior week. The OCT 2021 instrument (contract price: N420.05) received the most buying interest in the week with an additional subscription of $3.5 million which took total value to $43.9 million. On the other hand, the MAY 2021 instrument (contract price: N405.86) was the least subscribed with an additional subscription of $1.2 million bringing the total value to $726.1 million.
In the course of last week, the interbank rates (OBB and OVN) opened the week at 1.9 per cent and 2.3 per cent respectively, relatively lower than 5.7 per cent and 6.4 per cent recorded at the close of the previous week, despite system liquidity falling from N904.2 billion from N140.3 billion. On Wednesday, the OBB and OVN rate fell to 0.6 per cent and 1.1 per cent following inflows from OMO maturities worth N226.8 billion. Furthermore, on Friday, the OBB and OVN rate closed the week at 0.5 per cent and 0.6 per cent respectively as system liquidity settled to N151.4 billion.
On Wednesday, the CBN at the primary market auction (PMA) issued 91-day (Offer: N19.8 billion; Subscription: N99.9 billion; Sale: N19.8 billion); 182-day (Offer: N40.1 billion; Subscription: N92.2 billion; Sale: N10.0 billion) and 91-day (Offer: N107.9 billion; Subscription: N411.1 billion; Sale: N7.5 billion) instruments. Across tenors, marginal rate trended lower to 0.035 per cent, 0.15 per cent and 0.30 per cent from 1.0 per cent, 1.0 per cent and 2.0 per cent at the previous auction for the 91, 182 and 364-day notes respectively. Demand remained strong at the auction as instruments across the board were oversubscribed at 5.7x (91-day), 2.3x (182-day) and 3.8x (360-day) respectively.
The performance in the T-bills market was bullish as excess funds from the primary auction filtered into the secondary market last week. Consequently, the average yield across benchmark tenors declined 28 basis points week on week to close at 0.1 per cent. At the close of the week, the mid-term instrument enjoyed the most buying interest as the average yields declined 52 basis points week on week to 0.1 per cent while the yield on the short and long-term instruments dived 27 basis points and 4 basis points week on week to 0.1 per cent and 0.2 per cent respectively.
Profit-taking on 3 of 5 trading sessions dragged the performance of the secondary market as average yield inched higher by 0.2 per cent week on week to settle at 4.0 per cent. Across tenors, the mid-term instruments recorded the most selloffs as average yield increased 43 basis points week on week while the short and long-term instrument rose 3 basis points apiece. Meanwhile, the DMO sold its FGN Savings Bond with a total allotment of N298.6 billion (FGN NOV 2022 – N27.9bn and FGN NOV 2023 – N295.6bn). The FGNSB 2022 and 2023 instruments were issued at a marginal rate of 1.76 per cent and 2.76 per cent respectively lower than the 2.45 per cent and 3.45 per cent at the previous auction in October.
However, in the SSA Eurobonds segment, the bullish sentiment was sustained as average yield fell 11 basis points week on week to close at 9.4 per cent. The GABON 2025 recorded the most gains as yield dropped by 41 basis points week on week. Trailing, the yield on Nigeria 2022 and 2032 instruments fell 39 basis points and 37 basis points respectively. On the other hand, ZAMBIA 2024 and 2022 notes were the worst performing instruments for the week as their yields climbed 0.5 per cent and 1.2 per cent week on week respectively. This happened after bondholders rejected Zambia’s request for debt relief in a meeting during the week.