Anchoria Fixed Income Monitor: Increased Investors Appetite at Bond Auction

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Tuesday, September 29, 2020 / 1:40 PM / by Anchoria AM Research / Header Image Credit: InvestAdvocate

 

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Money Market

The average money market rate fell marginally by 1.09% to settle at 1.42% from 2.50% in the previous week. The Open Buy Back (OBB) rate closed at 1.00% from 2.00% while Overnight rate (OVN) closed at 1.83% compared to 3.00% the previous week. This may be attributable to inflows from OMO maturities worth N318.12 billion and FGN Coupon payments of N18.12 billion that flowed into the system during the week.

 

Following the MPC meeting held last week, the CBN slashed its MPR rate to 11.50% from 12.50% and reviewed the asymmetric corridor to +100 to -700 basis points from +200 to -500 basis points. This effectively means that the CBN will borrow at 4.50% p.a and lend at 13.50% p.a. According to the CBN, reducing the MPR will put pressure on the deposit money banks to lower cost of credit and the cheaper credit will improve demand, stimulate production, reduce unemployment and support the recovery of output growth. The committee retained the cash reserve ratio at 27.50% and liquidity ratio at 30%.

 

We expect buoyancy in the system liquidity as inflows from OMO maturities (N18.77 billion) and FGN Coupon Payment (N40.77 billion) are expected to hit the system during the week.

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Forex: USD/NGN

Nigeria's currency remained stable at the parallel market, closing at N467/$1. The narrative is similar at Investors & Exporters window as rates retained position at N386/$1 while the CBN official window closed at N379/$1. The CBN is still committed to its weekly forex sales to BDCs, having sold over $200 million which is expected to inject more liquidity to the retail end of the forex market and also discourage hoarding and speculation.

 

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 31bps to close at 7.24% compared to 7.55% in the previous week. The highest yield decline was witnessed in the MAR-2027 bond which declined by 84bps to close at 6.78% compared to 7.62% the previous week while the highest yield increase was seen in the JAN-2022 bond which rose by 9bps to close at 3.93%.

 

At the Bond auction held last week, the DMO offered instruments worth N145.00 billion to investors through re-openings of the 12.50% JAN 2026 (Stop rate: 6.00%), 12.50% MAR 2035 (Stop rate: 8.52%), 9.80% JUL 2045 (Stop rate: 8.90%) and 12.98% MAR 2050 (Stop rate: 8.94%). Despite the oversubscription of N360.22 billion, the DMO allotted N103.81 billion to investors. (See next page for Bond result)

             

We expect to see sustained demand in the Bond market as investors continue to pick attractive bonds while retaining a cautionary approach in the market.

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Treasury Bills

The Treasury bills market closed bullish last week as the average yield rose by 4bps to close at 1.61% compared to 1.57% the previous week. Conversely, OMO bills fell by 53bps to close at 1.75% compared to 2.28% the previous week.

 

At the T-bills auction, the CBN offered bills worth N70.00 billion, with allotments of N10 billion for the 131 day, N10.00 billion for the 166 day and N50.00 billion for the 348 day. The stop rate closed at 4.77% (previously 4.86%), 7.60% (previously 7.68%), and 8.70% (previously 8.88%). respectively.

 

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, above $40 on the back of inventory draws and hurricane outages, bearish sentiment returned to the market this week due to fears of a second wave of COVID-19 threatening to shut down European economies once again. Brent oil closed at $41.92 per barrel compared to $43.15 per barrel the previous week while WTI closed at $40.25 per barrel

 

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

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