Anchoria Fixed Income Monitor: Investors' Appetite Remained Strong at Bond Auction

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Tuesday, April 28, 2020 / 11:04 AM / By Anchoria AM Research / Header Image Credit: Neocompta

 

Money Market

The average money market rate rose significantly last week by 18.58% to settle at 20.71% from 2.13% in the previous week. The constraint in the system liquidity is attributable to the sudden CRR debits by the CBN and FGN Bond auction sum of N156.06 billion which occurred during the week.


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The notable inflow during the week included OMO maturities worth N267.67 billion and FGN Bond coupon payments of N32.67 billion while notable outflows include: OMO auction - N112.65 billion and FGN Bond auctions - N156.06 billion.

 

We expect the system to be relatively awash with buoyant system liquidity this week due to OMO maturities worth N30.66 billion and FGN Bond coupon payments of N149.14 billion which is expected to hit the system.

 

Forex: USD/NGN

US Dollar to Naira Exchange rate is currently at N456.00 in the parallel market as at April 24, 2020. This is 8.31% increase from the previous week. At the beginning of the month, Dollar to Naira exchange rate was at N416.00 in the parallel market.

 

Asides the historic fall in oil price, the pressure in the FX market is further compounded by the fact that the other key revenue sources of the Government such as taxes and imports duties are also on the downward turn due to the ongoing pandemic. Imports are suspended due to border closures and businesses are experiencing decline in profit margins

 

We expect the demand pressure to continue in the I&E FX window due to the uncertainty in both global and domestic economies.


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Bond: FGN

The secondary sovereign Bond market closed bullish last week as the average yield fell by 52bps to close at 10.49% compared to 11.00% in the previous week. The highest yield increase was witnessed in the JAN-2022 issuance which rose by 23bps to close at 6.42% while the highest yield decline was witnessed in the MAR-2024, fell by 143bps to close at 8.08%.

 

The Sovereign Eurobond market closed on a bearish note as the average yield rose by 120bps to close at 12.74% compared to 11.53% the previous week. In the same vein, the Corporate Eurobond market closed bearish as the average yield rose by 30bps to close at 13.71% compared to 13.42% the previous week.

 

At the Bond Auction held during the week, the DMO offered a total of N60 billion worth of instruments to investors through re-openings - 12.75% APR 2023,12.50% MAR 2035 and 12.98% MAR 2050. The stop rates closed at 9.00%, 12.00% and 12.50% respectively. (See next page for Bond result).

 

Treasury Bills

The T-bills secondary market closed on a bullish note last week as the average yield fell by 36bps to close at 2.71% compared to 3.06% the previous week. In the same vein, OMO bills pared by 135bps to close at 9.90% compared to 11.26% the previous week.

 

In the OMO auction held last week, the CBN fully allotted instruments worth N112.65 billion - 89 days - N20.37 billion, 180 days - N11.50 billion and 341 days - N80.78. The stop rates were 11.50%, 11.50% and 12.70% respectively.

 

We anticipate the expected buoyant system this week to shape the positive sentiment in the market.

 

Commodities

OPEC and its non-OPEC partners led by Russia agreed earlier this month to reduce their combined oil production by 9.7 million bpd in May and June, in response to the crash in global oil demand in the pandemic. Although the new OPEC+ agreement goes into effect on May 1, OPEC's fourth-largest producer, Kuwait, has already started to reduce crude oil supply to international markets “sensing a responsibility response” to market conditions.

 

Brent oil fell by 24bps to close at $21.44 per barrel while WTI fell by 7bps to close at $16.94 per barrel.

 

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Related News

1.       A Highly Provisional Calendar from the DMO

2.      Supply Of The Greenback Dwindles, Causing Value Of The Naira To Drop 6% In The Streets

3.      Average Yield Settled at 2.7% on High Liquidity; The CBN Debits Banks N1.4trn in Special CRR

4.      April 2020 FGN Bond Auction Oversubscribed

5.      Central Bank Sterilizes N1.30Trillion Of Bank Deposits To Combat Excess System Liquidity

6.      A Much Better Auction for the DMO

7.      DANGCEM Announces the Issuance of N100bn Series 1 Fixed Rate Senior Unsecured Bonds

8.     System Liquidity Touches A Trillion, Prompting An OMO Auction By The CBN

9.      Summary of FGN Bond Auction Results For April 2020

10.  Two-In-One Combo: DMO Cuts Stop Rates And Borrows 160% More At Bond Auction Amidst Healthy Demand

11.   Yields Retreat as Global Oil Prices Plummet


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