Bond Market Closed On A Bullish Note With Increased Demand Seen On Most Maturities

Monday, February 04, 2019    01:32PM / Anchoria AM Research

Money Market

The money market rate decreased last week as the Overnight rate (OVN) and Open Buy Back (OBB) fell to 11.86% and 11.07% respectively. Consequently, the average money market rate fell by 1.08% to settle at 11.47% due to the increase in the System liquidity to cN666bn from N86bn in the previous week. Major inflow for the week included: FAAC payment of cN310bn; NTB repayment of cN254.64bn; OMO repayment of cN368bn while Outflow for the week included: Bond Auction settlement of cN116.99bn; Bi-weekly Retail FX Auction of cN360bn; OMO sales of cN585bn; Weekly Wholesale, Invisible and SME FX auction of $210mn and NTB auction of cN254.63bn.

We expect the rate to close higher this week barring as significant inflow as CBN prepared for another round of FX auction on Monday and anticipated OMO auctions during the week.

Forex: USD/NGN

The CBN Official rate continued its downward trend to close at N306.75/$, a 0.02% decrease. However, the rate in the Investors and Exporters’ FX Window rose marginally by 0.07% to close at N362.71/$. We observed a reduction in the market turnover in the I&E Window to $0.81 billion during the week from $1.26 billion in previous week. However, Naira at the parallel market depreciated marginally to close at N364.50/$ (using the Everdon BDC Rate).

We expect rates in the parallel market to remain constant as the apex bank continues to supply FX into the market, coupled with its frequent Wholesale and Retail SMIS programme.

Source: Anchoria AM Research, FMDQ OTC

Commodities

The Brent Crude Oil and WTI Crude Oil rose by 2.92% and 1.80% to close at $62.75 and $55.26 per barrel respectively due to the following factors:

a)     US sanctions on Venezuela’s Stated Owned Oil Firm

b)     Decline in OPEC Production

c)      Decline in the number odd active US Oil rigs.

Fixed Income

Bond: FGN

The Bond Market closed on a bullish note last week with increased demand seen on most maturities during the week. Notable amongst them include 2021s (59bps) and 2034s (50bps).  Average yields fell by 33bp to close the week at 14.91%. The Bond Auction during the week witnessed a subscription rate of 131.39% with the subscription in favour of longest tenor bond (FEB 2028). The marginal rate for all tenors fell below the rates in previous auction. (See the details below).

We anticipate the current trend on increased demand to persist in the earlier of the week.

January Bond Auction Results

Secondary Market

Source: Anchoria AM Research, FMDQ OTC

Treasury Bills

Despite the increase in system liquidity during the week, the treasury bills market traded on a flat note. Consequently, the average yield rose by 1bps to close the week at 14.40%.

T-Bills Auction Result

Secondary Market

Source: Anchoria AM Research, FMDQ OTC

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