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FX Rates Remain Under Pressure As CBN Devalues Rates At Its Official Window

Bonds & Fixed Income	1282 VIEWS
Bonds & Fixed Income
1282 VIEWS

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Saturday, November 28, 2020 / 11:30AM / Zedcrest Capital / Header Image Credit: Thebizhub

Below are highlights of trading activities in the fixed income and forex market on November 27, 2020

FGN Bonds

The FGN Bonds market closed the week on a negative note, with yields creeping upwards following reduced demand amidst supply from local players. Yields expanded by c.22bps on the average across the benchmark bond curve, with the short-end yields retreating the most in reaction to the gradual increase in short-term money market rates. Select maturities at the mid- (2026s and 2028s) as well as long-end (2049s) were not left out as sellers continued to searach for bids which continued to shy away as has been noted all week.

We expect the market to open the coming week with the same week sentiments, with some pockets of demand expected on select maturities as institutional investors with residual outstanding liquidity cherry-pick from the secondary market.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
16.39 27-Jan-22	1.52	0.02	0.32
12.75 27-Apr-23	2.21	1.07	0.35
14.20 14-Mar-24	2.70	1.17	0.68
13.53 23-Mar-25	3.50	0.98	1.00
12.50 22-Jan-26	4.20	3.60	0.40
16.29 17-Mar-27	4.40	3.50	0.01
13.98 23-Feb-28	4.40	3.80	0.00
14.55 26-Apr-29	4.40	3.90	0.00
12.15 18-Jul-34	5.30	4.90	0.10
12.50 27-Mar-35	5.30	4.90	0.10
12.40 18-Mar-36	5.10	4.90	0.00
16.2499 18-Apr-37	5.20	4.90	0.00
9.80 24-Jul-45	6.15	5.40	0.00
14.80 26-Apr-49	7.03	6.50	0.33
12.98 27-Mar-50	7.00	6.50	0.00

Treasury Bills

Appetite for OMO securities by local banks took a hit today, as bids for the long-dated maturities pulled back by 10bps. Supply of OMO bills maturing in October and November 2021 improved during trading, with local banks offering at 0.15% levels as bids remained shy. Mid-dated (February 2021) papers remained pressured, with demand seen from a few offshore players at the end of the OMO curve. Consequently, rates across the benchmark OMO curve weakened by 8bps on the average.

We expect the market to remain weak, as apathy for rates at these low levels remains following dropping system liquidity in the form of FX intervention flows.

Benchmark OMO Bills
Description	Bid (%)	Offer (%)	Day Change (%)
NGOMOB 01/05/21	0.10	0.00	0.05
NGOMOB 02/02/21	0.10	0.00	0.05
NGOMOB 03/02/21	0.10	0.00	0.05
NGOMOB 05/11/21	0.30	0.10	0.10
NGOMOB 06/08/21	0.30	0.10	0.10
NGOMOB 08/10/21	0.30	0.15	0.10
NGOMOB 09/07/21	0.30	0.15	0.10
NGOMOB 10/19/21	0.30	0.15	0.05
NGOMOB 01/05/21	0.10	0.00	0.05
Benchmark NTBills
Description	Bid (%)	Offer (%)	Day Change (%)
NIGTB 12/31/20	0.10	0.00	0.05
NIGTB 01/14/21	0.10	0.00	0.05
NIGTB 02/11/21	0.30	0.10	0.10
NIGTB 03/11/21	0.30	0.10	0.10
NIGTB 04/29/21	0.30	0.10	0.10
NIGTB 05/13/21	0.30	0.15	0.10
NIGTB 06/10/21	0.30	0.15	0.05
NIGTB 07/01/21	0.30	0.15	0.05
NIGTB 08/26/21	0.30	0.15	0.05
NIGTB 09/09/21	0.30	0.15	0.05
NIGTB 10/14/21	0.30	0.15	0.05

Money Markets

The Interbank rates closed the week on a higher note, rising by 50bps to close the week at 1.25% and 1.50% for OBB and OVN rates respectively. This is on the back of reduced system liquidity, which opened the day 13.28% lower at c.N295.48Bn.

We expect rates to remain in the lower single digits opening the week as banks receive inflows from FX funding refunds and OMO maturities.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	1.25	0.75
Overnight (O/N)	1.50	1.00

FX Market

Volumes traded in the I&E FX market dropped by 52% D/D in a still relatively active trading session. The greenback changed crossed above the N400/$ mark for the first time since June this year as demand pressures continue to heat up the market. This came in despite the CBN providing some dollar supply to the foreign portfolio investors (FPIs) at a new rate of N392.25/$.

In addition, the Apex bank issued a circular to market participants, revising the rates at the various official market segments upwards in a move effectively devaluing the Naira for the third time this year. The revised rates take effect from Monday, November 30, 2020.

The Naira continued to weaken in the parallel market, as demand for the greenback persists amidst little supply. The cash and transfer rates lost a further N5.00 on the average to close at N495.00/$ and N505.00/$ respectively.

	FX Market
		Current (N/$)			Previous (N/$)
	CBN Spot	379.00			379.00
	CBN SMIS	380.69			380.69
	I&E FX Window	390.25			393.25
	Cash Market	495.00			490.00
	Transfer Market	505.00			500.00
MARKET SEGMENTS			JAN.	MAR.		AUG.	NOV.
Official Rate			307	360		380	380
IMTO to Banks			355	376		382	388
Banks to CBN			356	377		383	389
CBN to BDCs			357	378		384	390
BDC to end-users			360	380		386	392
CBN to FPIs			366	380		380	394

Eurobonds

With global oil prices retained its recent gains after the short slump seen over the Thanksgiving holiday, the NIGERIA Sovereign papers traded with mixed sentiments in the last session of the week. The yield curve remained relatively unmoved as demand remained at the short-end of the curve countered the selling pressure seen at the long-end.

ANGOLA Sovereign bonds continued to lead the pack in gains in the Sub-Saharan Africa space, as its finance minister reiterated his commitment to maintaining positive credit risk for the oil-producing nation.

The NIGERIA Corporates saw sustained interest in some of the tracked papers, especially the FIDBAN 2022s which gained 8bps D/D.