Anchoria Fixed Income Monitor: Booming Gold Price amid Pandemic

Monday, July 27, 2020 / 3:38 PM / By Anchoria AM Research / Header Image Credit: GuruFocus

Money Market

The average money market rate fell significantly by 19.14% to settle at 1.90% from 21.04% in the previous week. This is due to inflows from FGN Bond coupon payments - N94.42 billion, FAAC disbursements -N430.03 billion and OMO maturities - N25.36 billion. Notable outflow includes - FGN bond auction worth N178.52 billion.

For the Interbank rate, Open Buy Back (OBB) closed at 1.60% compared to 20.33% in the previous week while Overnight rate (OVN) closed at 2.20% compared to 21.75% the previous week.

We expect inflow from FGN Bond coupon payments (N49.61 billion) to boost the system liquidity this week.

Forex: USD/NGN

The foreign exchange market remained illiquid last week as the Naira depreciated further. At the Investors & Exporters (I&E) forex window, naira depreciated by 26 basis points as the dollar was quoted at N389.50 compared to N388.50 the previous week. The rate stood at N470/$ at the parallel market.

We expect a continuous dwindling in the FX liquidity across all FX windows this week.

Bond: FGN

The secondary sovereign Bond market closed bullish last week as the average yield fell by 62bps to close at 7.17% compared to 7.79% in the previous week. The highest yield decline was witnessed in the JUL-2024 bond which declined by 118bps to close at 8.57% compared to 9.75% the previous week while the highest yield increase was seen in the MAR-2024 bond which closed at 4.64%.

The Sovereign Eurobond market closed on a bullish note as the average yield fell by 25bps to close at 7.32% compared to 7.57% the previous week. In the same vein, the corporate Eurobond market closed bullish as the average yield fell by 27bps to close at 7.77% compared to 8.04% the previous week. At the Bond auction, the DMO offered instruments worth N130 billion to investors through the -12.50% JAN 2026, 12.50% MAR 2035, 9.80% APR 2045 and 12.98% MAR 2050. Stop rates closed at 6.00%, 9.50%, 9.80% and 9.95% respectively. (See next page for Bond auction results)

We expect bond traders to retain cautionary approach in the market.

Treasury Bills

The Treasury bills market closed bullish last week as the average yield fell by 16bps to close at 1.75% compared to 1.91% the previous week. In the same vein, OMO bills fell by 96bps to close at 4.96% compared to 5.67% the previous week.

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

Commodities

The precious metal - Gold, continues to surge higher as global COVID-19 cases increases as well as heightened tensions between China and U.S. Consequently, Gold futures was up by 6.36% w-o-w to close at $1,925 per ounce compared to $1,810 the previous week. The increase in price may be attributed to investors turning to the asset as a safe store of value especially given the political and global financial uncertainty. More so, the possibility of further stimulus measures from central banks across the world has also aided the increase in the price of Gold.

In the global crude oil market, Brent oil increased by 56bps to close at $43.34 per barrel while WTI oil rose by 185bps to close at $41.34 per barrel compared to $40.59 per barrel the previous week.

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