Anchoria Fixed Income Monitor: Forex Illiquidity Lingers

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Monday, August 03, 2020 / 01:52 PM / By Anchoria AM Research / Header Image Credit: Forex Systems Books

 

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Money Market

The average money market rate fell marginally by 0.15% to settle at 1.75% from 1.90% in the previous week. This is due to the previous inflows from FGN Bond coupon payments - N94.42 billion and OMO maturities - N25.36 billion which sustained the system liquidity all through the week.

 

For the Interbank rate, Open Buy Back (OBB) closed at 1.40% compared to 1.60% in the previous week while Overnight rate (OVN) closed at 2.10% compared to 2.20% the previous week.

 

We expect the system liquidity to remain buoyant in this week barring any surprise CRR debit from CBN.

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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 appreciated by 25 kobo as the dollar was quoted at N389.25 compared to N389.50 the previous week. In the parallel market, the rate rose to N475/$. The increase in USD rate is attributable to the scarcity of the currency in the parallel market.

 

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

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Bond: FGN

The secondary sovereign Bond market closed bullish last week as the average yield fell by 28bps to close at 7.09% compared to 6.81% in the previous week. The highest yield decline was witnessed in the MAR-2027 bond which declined by 125bps to close at 6.75% compared to 8.00% the previous week while the highest yield increase was seen in the JUL-2034 bond which rose by 31bps to close at 8.88%.

 

The Sovereign Eurobond market closed on a bullish note as the average yield fell by 4bps to close at 7.28% compared to 7.32% the previous week. In the same vein, the corporate Eurobond market closed bullish as the average yield fell by 13bps to close at 7.64% compared to 7.77% the previous week.

             

We expect continuous interest in the Eurobond market due to anticipated positive outlook in the crude oil market.

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Treasury Bills

The Treasury bills market closed bullish last week as the average yield fell by 36bps to close at 1.75%. In the same vein, OMO bills fell by 41bps to close at 4.23% compared to 4.96% the previous week.

 

At the primary market auction held last week, the CBN offered N265.95 billion worth of bills to investors. The CBN offered N49.84 billion for 91-day, N54.59 billion for 182-day and N161.52 billion for 364-day at respective stop rates of 1.20%, 1.50% and 3.40%.

 

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

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Commodities

Oil prices rebounded last week after the U.S posted the second quarter GDP figure. Oil prices rallied to its familiar territory - roughly $40 for WTI and $43 for Brent. On a week on week basis, Brent oil rose by 69bps to close at $43.64 per barrel compared to $43.34 the previous week while WTI fell by 2.18% to close at $40.44.

 

Gold futures continued its increase on a week on week basis as it closed at $1,985.90 per ounce, this is a 2.62% increase on a weekly basis. This can be attributed to uncertainty and high liquidity concerns globally as a result of economic stimulus by different governments.

 

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