BY CHARLES ABUEDE
Foreign Exchange Market
There is still no respite for the Nigerian Naira which traded at N606 to the dollar at the parallel market segment of the FX market as a result of continued pressure stemming from stack economic realities in the country, which in its complexities, is stoking the unrelenting increases in commodities prices, while the unabating FX backlogs continue to expose the weaknesses of the monetary authorities in the foreign exchange space. This, however, has left analysts in a hunch on the probable fair value of the naira by the close of the first half of the year.
Consequently, the naira weakened against the dollar by N7 week on week on the streets to N606 per dollar, down from N599. At the the Investors’ and Exporters’ window, the NAFEX rate recorded a slight depreciation by N0.03 to close the week at N419.03 from N419 to the greenback as the activity level at the I&E window waned 6.2 percent, week on week, to $622.9 million from $664.2 million in the prior week. Meanwhile, market participants maintained their bids at between N410 and N444 per dollar during the week.
Furthermore, the FMDQ OTC Securities Exchange FX contract market saw the total value of open contracts of the Naira open 0.8 percent week on week, indicating a rise of $30 million to settle at $3.9 billion. Thus, the April 2023 instrument with a contract price of N445.88 got the most buying interest with an additional subscription of $20 million, which raised the aggregate value to $124.26 million. Also, the May 2023 instruments with N448.59 also enjoyed an additional subscription of $10 million to close the week at $100.43 million in value while the other segments of the market closed flat.
In the money market, it is being predicted that funding rates will moderate owing to the expected level of liquidity flows worth N149.3 billion from the Nigerian Treasury Bills and OMO maturity bills worth N30 billion. However, last week saw inflows worth N35 billion from the OMO space and primary and secondary repayment of N6.6 billion hitting the system. Though the inflow was not sufficient to support the liquidity level as it dwindled by 62.6 percent week on week to N92.5 billion, and as such, the money market rates moved higher with the OPR and OVN rates trending northward by 358 basis points and 333 basis points and closing the week at 12.3 percent and 12.5 percent, respectively.
Fixed income market weekly snapshot
Just like was envisaged during the past week, fixed-income analysts anticipate that the bonds market will likely trade on a muted note as investors focus on the outcome of the MPC meeting on Tuesday. By the same token, analysts anticipate tepid trading in the Nigerian Treasury Bills segment ahead of Wednesday’s Treasury Bills auction by the Central Bank.
In the fixed income space last week, the market was largely quiet with pockets of activity on select days. For the bonds space, the yield on benchmark bonds eased on average, driven by mild buy-side activity across the benchmark curve. The Nigerian Treasury Bills market saw some bearish activity which resulted in an average yield rise; and finally, in the OMO space, yields declined on the average on the back of slight bullish activity.
Similarly, at the close of the week, the Nigerian Treasury Bills secondary market closed on a flat note with the average yield across the curve remaining unchanged at 3.63 percent. Also, the average yields across short-term, medium-term, and long-term maturities remained unchanged at 3.03 percent, 3.36 percent, and 4.52 percent, respectively.
In the OMO bills market, the average yield across the curve closed flat at 3.78 percent. Average yields across short-term, medium-term, and long-term maturities remained unchanged at 2.76 percent, 3.88 percent, and 4.74 percent, respectively.
Last week, the FGN bonds secondary market closed on a mildly positive note as the average bond yield across the curve cleared lower by 4 basis points to close at 11.49 percent from 11.53 percent, resulting from the increased demand from investors who took to the secondary market to fill unmet demands from the primary market auction that was conducted earlier in the week by the Debt Management Office (DMO).
Consequently, the average yields across short tenor and medium tenor of the curve declined by two basis points and 10 basis points, respectively. However, the average yield across the long tenor of the curve remained unchanged while the 17-MAR-2027 maturity bond was the best performer with a decrease in the yield of 22 basis points.
Elsewhere, the debt management office (DMO) on Monday presented the FGN Bond Auction for May 2022 at the primary market auction where the auction was oversubscribed by 156 percent due to healthy investor demand, with bid-to-cover ratios for the 3-year tenor of MAR 2025, 10-year tenor of APR 2032, and 20-year tenor of JAN 2042 bonds settling at 1.68x, 1.53x, and 4.46x percent, respectively. It was observed that the DMO allotted bonds worth N345.26 billion across the 3-year MAR 2025 worth N88.92 billion, 10-year tenor bond worth N85.34 billion, and 20-year JAN 2042 worth N171 billion at marginal rates of 10 percent, 12.45 percent (-5 bps), and 13 percent (+10 bps), respectively. In addition, the DMO allotted bonds worth N33.15 billion through non-competitive bids across the 10-year FGN APR 2032 bond; while in total, the DMO raised N378.41 billion.