Anchoria Fixed Income Monitor: Average Money Market Rates Rose by 12.09% to Settle at 14.40%

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Monday, August 31, 2020 / 01: 33 PM / By Anchoria AM Research / Header Image Credit: Investopedia 

 

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Money Market

The average money market rate rose significantly by 12.09% to settle at 14.40% up from 2.32% in the previous week. This may be attributed to the CRR debits across banks by the Central Bank. There were also OMO auctions which pressured liquidity in the system. These outflows overweighed the inflow from OMO maturities worth N283.42 billion and FGN Coupons of N49.89 billion.

 

For the Interbank rate, Open Buy Back (OBB) closed at 13.90% compared to 2.00% in the previous week while Overnight rate (OVN) closed at 14.90% compared to 2.63% the previous week.

 

We expect buoyancy in the system liquidity as inflows from OMO maturities are expected to hit the system this week.

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Forex: USD/NGN

In a circular directed to all authorized dealers and BDCs, the Central Bank of Nigeria announced the resumption of forex sales to Bureau de Change operators in Nigeria. The circular further stated that forex sales to BDC will commence on August 31st, 2020 at N386/$1. With the commencement of International travels, Nigerians who seek to travel only need to present their passport along with visa and ticket to banks for forex sales to them at the official rate of N386/$1. This is expected to bring some stability and drop in Forex price at the parallel market as close to 3,000 BDCs will have access to $10,000 each twice a week equaling a total of almost $60 million weekly.

 

 Also, the CBN issued a circular during the week targeting buying agents or companies and third parties from accessing its SMIS forex window through Form M forex purchases. This means that the CBN is in effect eliminating over-pricing and mispricing of goods and services imported into the Country.

 

We expect the pressure on Naira to drop in the short term as the Central Bank continues to express its commitments by carrying out measures to stabilize and unify the exchange rate.

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Bond:FGN

The secondary sovereign Bond market closed bullish last week as the average yield fell by 2bps to close at 7.97% compared to 7.99% in the previous week. The highest yield decline was witnessed in the MAR-2036 bond which declined by 58bps to close at 9.05% compared to 9.63% the previous week while the highest yield increase was seen in the MAR-2027 bond which rose by 32bps to close at 8.11%. The bullish sentiments witnessed in the market may be attributable to investors reinvesting their OMO maturities and bond coupon payments which flowed into the system during the week. Investors seemed to flock towards the short term bonds to reap the upcoming coupon payments.

 

The sovereign Eurobond market closed on a bullish note as the average yield fell by 11bps to close at 6.78% compared to 6.89% the previous week. In the same vein, the corporate Eurobond market closed bullish as the average yield fell by 9bps to close at 7.03 compared to 7.12% witnessed the previous week.

              

We expect increased activities in the Bond market as Investors hunt for investments outlets due to excess liquidity.

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Treasury Bills

The Treasury bills market closed bearish last week as the average yield rose by 82bps to close at 2.02% compared to 1.05% the previous week. Conversely, OMO bills fell by 25bps to close at 3.12% compared to 3.36% the previous week.

 

At the auction held on Wednesday, the CBN rolled over maturing bills worth N197.60 billion, with allotments of N20.37 billion for the 91 day, N31.75 billion for the 182 day and N145.48 billion for the 364 day. The stop rate for 182 and 364 days inched higher to close at 1.80% and 3.34% respectively while the 91 day inched lower by to close at 1.14% compared to 1.20% from the previous action. The auction was over-subscribed across all tenors, thanks to the healthy system liquidity which sustained demand across board.

 

We expect increased demand in the T-bills market as investors take position in the market

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Commodities

Nigeria, like other oil-producing countries, reflected the negative impact of the disruption caused by the COVID-19 pandemic and the crash in oil price on its economy. In the second quarter of the year, Nigeria's economy shrank by 6.10% year on year with the oil sector contracting by 6.63%, indicating a decline of 13.80% points when compared to Q2 2019. Also, the fact that the daily average production decline from 2.02mbpd to 1.81mbpd contributed adversely to the decline in revenue from the oil sector.

 

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