Anchoria Fixed Income Monitor: Heavy Market Liquidity Pressures Rates Downwards

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Monday, September 21, 2020 / 11:19 AM / by Anchoria AM Research / Header Image Credit: Yahoo UK

 

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Money Market

The average money market rate fell significantly by 13.00% to settle at 2.50% down from 15.50% in the previous week. The Open Buy Back (OBB) rate decreased significantly to close at 2.00% compared to 14.50% in the previous week while Overnight rate (OVN) closed at 3.00% compared to 16.50% the previous week. This may be attributable to inflows from OMO maturities worth N350 billion and FGN Coupon payments of N142.09 billion that flowed into the system during the week.

 

We expect buoyancy in the system liquidity as inflows from OMO maturities (N318.12 billion) and FGN Coupon Payment (N18.12 billion) are expected to hit the system during the week.

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Forex: USD/NGN

Nigeria's currency weakened by 1.52% at the parallel market as dollar exchanged for N467.00 compared to N460.00 witnessed last week. At the Investors and Exporters window, the rate remained constant at N386.00 week on week.

 

The pressure in the foreign exchange market remains despite the sale to BDCs following the resumption of international travel. There is also an increase in economic activities which may have boosted the demand for purchase of FX for importation of goods and services. Other reasons could be attributed to hoarding and speculation, instability in oil price, which accounts for about 90 percent of the country's revenue coupled with low remittances caused by the pandemic.

 

We expect the pressure on Naira to drop in the short term as the Central Bank continues to carry out measures aimed 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 12bps to close at 7.55% compared to 7.67% in the previous week. The highest yield decline was witnessed in the APR-2029 bond which declined by 48bps to close at 8.03% compared to 8.52% the previous week while the highest yield increase was seen in the JUL-2021 bond which rose by 8bps to close at 2.41%. The bullish performance maybe due to investors reinvesting maturities and coupon payments received during the week.

 

The sovereign Eurobond market closed on a bearish note as the average yield rose by 10bps to close at 6.79% compared to 6.69% the previous week. Conversely, the corporate Eurobond market closed bullish as the average yield fell by 8bps to close at 6.85% compared to 6.93% witnessed the previous week.

              

We expect investors focus to shift towards the auction scheduled for Wednesday as the DMO is set to offer instruments worth N145 billion through re-openings.

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Treasury Bills

The Treasury bills market closed bearish last week as the average yield contracted by 15bps to close at 1.57% compared to 1.72% the previous week. In the same vein, OMO bills fell by 14bps to close at 2.28% compared to 2.42% the previous week.

 

At the T-bills auction, the CBN offered bills worth N128.06 billion, with allotments of N4.41billion for the 91 day, N14.00 billion for the 182 day and N109.65 billion for the 364 day. The stop rate closed at 1.10%, 1.55% and 3.05% respectively.

 

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

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Commodities

Crude oil prices began the week on a bullish note. This was triggered by the news of a tropical storm in the Gulf of Mexico which compelled major U.S oil producers to shut down their oil rigs. Generally, when oil supplies are shut down, crude oil prices surge higher, however, with the global exponential growth in the COVID-19 cases and slowdown in economic activities, it is assumed that the crude oil activities will remain flat.

 

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


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