Anchoria Fixed Income Monitor: Naira Strengthens Against Dollar after Holiday

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Monday, October 05, 2020  11:10 AM / by Anchoria AM Research/ Header Image Credit:  Wikipedia


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Money Market

The average money market rate fell marginally by 0.13% to settle at 1.29% from 1.42% in the previous week. The Open Buy Back (OBB) rate closed at 1.00% which is similar to last week's while Overnight rate (OVN) closed at 1.58% compared to 1.83% the previous week. This may be attributable to inflows from OMO maturities worth N140.00 billion and FGN Coupon payments of N45.45 billion that flowed into the system during the week.

 

We expect buoyancy in the system liquidity as inflows from OMO maturities (N567.69 billion) is expected to hit the system during the week.


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Forex: USD/NGN

Nigeria's currency strengthened after the Independence holiday by N5.00k week-on-week as the dollar traded at N462 per dollar on Friday compared to N467/$ the previous week. The naira appreciation may be attributable to low demand by end users and dollar supply to Bureau de Change operators by the Central Bank on Friday. At the Investors & Exporters window (I&E) window, the Naira also appreciated by 0.05% as the dollar was quoted at N385.80 in comparison with last week's close of N386.00. The CBN is still committed to its weekly forex sales to BCDs across the country, which is expected to inject more liquidity to the FX market.

 

During the week, Nigeria's foreign reserves received a boost of about $200 million when the London Commercial court ordered the release of the $200 million guarantee put in place as security in respect of the   Process & Industrial Developments (P&ID) adjudication.

 

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 40bps to close at 6.83% compared to 7.24% in the previous week. Yields contracted across instruments excluding the FEB-2028 bond and APR-2037 bond which closed at 7.25% and 8.80% respectively. The highest yield decline was seen in the JAN-2022 which contracted by 133bps to close at 2.60% compared to 3.93% the previous week.

 

The sovereign Eurobond market closed bullish as the yields fell by 14bps to close at 7.50% compared to 7.64% the previous week. In the same vein, the corporate Eurobond market closed bullish as the yields fell by 15bps to close at 6.89% compared to 7.04% the previous week.

             

We expect to see sustained demand in the Bond market as investors continue to re-invest their maturities 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 38bps to close at 1.85% compared to 1.61% the previous week. In the same vein, OMO bills rose by 31bps to close at 1.94% compared to 1.75% the previous week.

 

At the T-bills auction, the CBN rolled over bills worth N133.97 billion, with allotments of N10 billion for the 91 day, N17.60 billion for the 182day and N106.37 billion for the 364 day. The stop rate closed at 1.08% (previously 1.09%), 1.49% (previously 1.50%), and 2.80% (previously 3.05%). respectively.

 

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


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Commodities

Crude oil prices fell below $40/barrel following the announcement that President Donald Trump and First Lady Melania Trump tested positive to the virus. Brent crude dropped by 6.32% to close at $39.27/barrel while WTO oil fell by $37.05/barrel. The stability of Nigeria's exchange rate is under threat due to the fluctuations and outlook in the price of crude oil. According to Reuters, oil prices are likely to trade around $40 due to a resurgence of the Covid-19 cases which might induce a second lockdown in Europe.


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