CBN’s ‘No Sale’ OMO Auction Puzzles Markets

Proshare

Wednesday, July 03, 2019    /  08:00AM  /  Zedcrest Capital

 

The CBN floated an OMO auction for the second time this week, but opted for a ‘No sale’ despite healthy subscription levels. 

Despite the no sale, the CBN is still expected to float another OMO auction to manage system liquidity levels in anticipation of last month’s FAAC inflows. We maintain our expectation for an uptrend in yields in the near term. 

Below are highlights of happenings in the fixed income and forex market on July 02, 2019

 

Bonds

The pace of the recent bullish run in the FGN Bond market slowed yesterday as market players continued to re-invest their bond maturities. We note sustained demand interests on some specific maturities at the short- to mid-end of the curve, most notable the off-the-run 2029 maturity. Average yields remained relatively stable across the bond curve by the close of the trading session. 

We maintain our expectation for bond yields to flatten out in the near term, following the resumption in OMO issuance by the CBN.

 

Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

14.50 15-Jul-21

13.48

12.66

(0.23)

16.39 27-Jan-22

14.08

13.30

0.09

12.75 27-Apr-23

14.47

14.13

0.15

14.20 14-Mar-24

14.15

13.89

0.01

13.53 23-Mar-25

14.06

13.87

0.02

12.50 22-Jan-26

14.42

14.25

(0.11)

16.29 17-Mar-27

14.20

14.11

0.00

13.98 23-Feb-28

14.38

14.26

0.05

12.15 18-Jul-34

14.55

14.35

0.00

12.40 18-Mar-36

14.48

14.34

(0.03)

16.2499 18-Apr-37

14.50

14.37

0.00


Source: Zedcrest Dealing Desk

 

Treasury Bills

The T-bills market opened the trading session on a cautious note, following the prorated supply from the previous day’s OMO auction. While bids compressed at the short-end of the NTB Curve, supported by buoyant system liquidity, we experienced an upward retracement at the mid- to long-end of the curve as market participants priced in the resumption of OMO auctions by the CBN. Average yields compressed by c.5bps across the NTB curve.


OMO  - 2 July 2019

Tenor

Rate (%)

Offer (N’bn)

Sub (N'bn)

Sale (N'bn)

100 day

Nil

20.00

4.25

No Sale

254 day

Nil

40.00

12.91

No Sale

345 day

Nil

40.00

626.11

No Sale

Source: CBN



Benchmark Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

18-Jul-19

11.00

5.00

(0.50)

1-Aug-19

11.00

5.00

(0.50)

12-Sep-19

11.50

10.00

0.00

3-Oct-19

11.50

10.65

0.10

14-Nov-19

12.00

11.50

0.00

5-Dec-19

11.90

11.50

(0.05)

2-Jan-20

12.00

11.50

0.15

6-Feb-20

12.00

11.75

0.05

19-Mar-20

12.00

11.75

0.05

2-Apr-20

12.00

11.50

0.00

14-May-20

12.05

11.65

0.05

04-Jun-20

12.00

11.40

0.00

Source: Zedcrest Dealing Desk 

 

Money Market

Rates in the money market dipped by c.1.65pct, as the CBN conducted an OMO auction but did not mop up any excess system liquidity from FAAC Inflows due to no sale. The OBB and OVN rates consequently ended the session at 6.57% and 7.21%, with system liquidity now estimated at c.N474bn positive. 

We expect rates to oscillate in tandem with system liquidity, as we anticipate another OMO auction by the CBN.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

6.57

8.14

Overnight (O/N)

7.21

8.93

Source: FMDQ, Zedcrest 

 

FX Market

At the interbank, the Naira/USD rate remained stable at N306.95/$ (spot) and N357.53/$ (SMIS). The NAFEX rate at the I&E window gained by 5k to N360.52/$, as the market turnover saw an increase of 115% to close the session at $303m. 

At the parallel market, the cash and transfer rates remained stable at N358.60/$ and N362.50/$ respectively.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.95

306.95

CBN SMIS

357.53

357.53

I&E FX Window

360.52

360.57

Cash Market

358.60

358.60

Transfer Market

362.50

362.50

Source: CBN, FMDQ, REXEL BDC 

 

Eurobonds

A bit of profit taking activities saw a slowdown in the bullish run of the NGERIA Sovereigns papers, as investor buzz from the recently concluded G-20 summit fades. We witnessed yields expand by c.7bps on the average across all the papers on the sovereign curve. 

The lack of supply of available NGERIA Corps papers in the street may have caused the slowdown in demand interests in the paper. The Access 21s and Zenith 22s both gained +1pct, while the FIDBAN 22s and ETINL 24s both lost -8pct at the close of the trading session.

 

Proshare Nigeria Pvt. Ltd. 


Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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