Naira weakens on street, FX reserves climb to $35.7bn in first trading week on optimism

By Charles Abuede

• Market analysts anticipate fall at domestic bond market

Following optimism over the distribution of vaccines across the world, Brent crude continues to gain positive momentum as it advanced 5.0 per cent week on week to $54.4/bbl. amid anticipation for increased oil demand globally as inventories are depleted.

In the same vein, Nigeria’s external reserves balance increased marginally by 1.0 per cent, week on week, to settle at $35.7 billion. 

At the foreign exchange market, the naira depreciated by N2 to close at N472 against the greenback on the street market. Activity level in the I&E Window decreased by 73.4 per cent to $141.2 million from the previous week. Also, the local currency traded N379 against the dollar at the CBN spot markets, unchanged from previous week’s close. On the other hand, naira gained N16.75 at the Investors’ & Exporters’ (I&E) Window, settling at N393.50 per dollar at the end of the week.

The total value of open contracts of the naira at the FMDQ Securities Exchange (SE) FX Futures Contract Market rose 2.7 per cent ($215.99 million) to close at $8.4 billion. The MAY 2021 instrument (contract price:  N413.14 million) recorded the highest subscription of $100 million which took total value to $924.9 million. On the other hand, the AUGUST 2021 instrument (contract price:  N421.93) received the least subscription worth $0.9 million, bringing its total value up to $302.4 million.

Also, bullish momentum was witnessed in the money market as the interbank rates – OBB and OVN – opened the year higher at 1.0 per cent and 1.5 per cent respectively from the close of 0.5 per cent and 0.8 per cent last year as system liquidity fell to N821.1 billion. By the end of the week, the rates closed at 8.0 per cent and 9.3 per cent despite an increase in system liquidity to N1.1 trillion.

Last Thursday, following the inflow from OMO maturities worth N411.0 billion, the CBN conducted an OMO auction worth N60 billion to mop-up liquidity in the system. Demand at the auction was robust as the 110-day (Offer:  N10 billion; Subscription:  N57.8 billion; Sale:  N10 billion), 180-day (Offer:  N10 billion; Subscription:  N81 billion; Sale:  N10 billion) and 362-day (Offer:  N40 billion; Subscription:  N539.81 billion; Sale:  N40 billion) instruments were oversubscribed by 5.8x, 8.1x and 13.5x at marginal rates of 1.5 per cent, 4.3 per cent and 5.7 per cent respectively.

Similarly, in the secondary market, the performance was bullish as average yields across tenors declined 5 basis points week on week to 0.43 per cent. The 182-day and 364-day instruments traded at lower yields of 0.23 per cent and 0.38 per cent (previous week: 0.38 per cent and 0.72 per cent respectively). Conversely, the 91-day instrument traded flat at 0.38 per cent.

In the other news, analysts and investors are highly expectant of inflows from maturing OMO instruments worth N211.3 billion to shape the movement of rates this week while the CBN in the same vein, is expected to keep rates and system liquidity in check through its regular auctions.

In the first trading days of the year, the domestic bonds market opened the year on a bearish note as average yield rose 24 basis points to 6.3 per cent following sell pressures on 4 of the 5 trading days. Across tenors, the long-term instrument recorded the most sell-offs as yields advanced 38 basis points week on week and trailing, was the medium-term and short-term instruments rose 21 basis points and 8 basis points week on week respectively.

Across the SSA Eurobonds space, price appreciation drove performance leading to a bullish outing as average yield fell 6 basis points from last week to 7.6 per cent. The NIGERIAN 2021, GABON 2024 and NIGERIAN 2027 instruments recorded the most buying interest as yields declined 52 basis points, 50 basis points and 39 basis points from prior week respectively. Conversely, yields on the GHANA 2022 and SENEGAL 2021 instruments rose 2.7 per cent and 0.9 per cent week on week respectively.

Meanwhile, at the African Corporate Eurobonds market, the performance was positive as average yield dipped 1.4 per cent week on week to 4.6 per cent. The ESKOM HOLDINGS 2021 and ACCESS BANK 2021 instruments posted a bullish performance as yields declined 21.5 per cent and 2.7 per cent week on week respectively. On the other hand, the NEERG ENERGY 2022 and OFFICE CHERIFIEN 2024 instruments recorded a sell-off as yields rose 93 basis points and 15 basis points week on week respectively.