CBN To Securitize Excess Cash Reserve Requirement Balances for Local Banks As Special Bills

Wednesday, December 02, 2020 / 8:58 AM /by Zedcrest Capital / Header Image Credit: CNBC

FGN Bonds

The weakness of yields in the FGN Bonds market slowed down in today's session, as we noted improved bids on securities at the short-end of the benchmark bond curve. In a relatively inactive session, dealers continued to reprice their expectations for a possible negative shift in the yield curve, opting for lower duration securities instead. Supply on the long-dated securities (2037s, 2049s and 2050s) continued to remain ignored as bids on those papers remained high and shy. Consequently, yields dipped by c.3bps on the average across the benchmark bond curve. 

The market is expected to remain testy as the direction of yields remains unclear in the interim, and the PFAs continue to remain on the side-lines at these levels.

Treasury Bills

Despite improved liquidity, the supply of treasury bills continued to flood the market in today's session. Rates expanded further by c.5bps on the average across the benchmark OMO and NTB curves, as offshore investors continue to sell-down their holdings of the longer-dated maturities. Rates for the 1-year OMO (16Nov2021 paper) increased for the third consecutive session, with offers up another 10bps to trade at 0.40%.

In the latest circular issued by the CBN, the Apex bank looks to securitize the excess Cash Reserve Requirement balances of local banks by offering them short-dated zero-coupon special bills instead of releasing cash balances. The special bills will however be tradable, between banks, retail and institutional investors. Further clarification of the issue and pricing of these new instruments is expected from the CBN in the coming days.

We expect the market to open on a cautious note, as the expected supply of instruments from this new issue of special bills is expected to negatively impact rates on current treasury bills in the market.

Money Markets

OMO maturities of N341Bn dropped today, boosting system liquidity up by 176% to open the session at N628Bn. Money market rates consequently dropped in the face of the improved liquidity, closing at 0.75% and 1.00% for OBB and OVN rates respectively. 

We expect rates to remain stable in the interim, with outflows from Retail FX interventions not expected until late in the week.

FX Market

Traded volumes in the I&E FX market jumped up 380% with $168.57million changing hands as in a very active session. The closing rate appreciated by N1.00 to close at N394.00/$ as liquidity improved following the CBN's continued intervention in the market.

The parallel market showed exactly how shallow the retail-side of the markets was yesterday as market players reacted negatively to the changes in international remittances following the Apex bank's circulars released on Monday. The cash rate appreciated by 7.07% (N35.00) in a single day as market players shied away from showing bids on the greenback for most of the session, with the rate settling at N460/$ at the close of the session. The transfer rate also appreciated, albeit at a slower rate, closing 1.79% (N9.00) stronger at N495.00/$.  

Eurobonds

Yields on the NIGERIA Sovereigns halted its recent rising trend in a positive session which saw demand return to the sovereign curve. Bids improved across the board, as foreign investors picked up the sovereign papers in a relatively active trading session as global oil prices stabilized. Consequently, yields compressed by c.6bps on the average across the sovereign curve. 

The NIGERIA Corporates had a mixed trading session, with demand sustained for the ACCESS 2021s and FIDBAN 2022s dropping yields on both papers by c.3bps and c.9bps respectively. On the other hand, we noted increased selling pressure on the ZENITH 2022s, UBANL 2022s and ETINL 2024s leading yields on those papers to expand by c.4bps, c.12bps and c.3bps respectively.

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