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Net CRR Refund Eases Liquidity Crunch, Drives Demand for OMO Bills

Bonds & Fixed Income	726 VIEWS
Bonds & Fixed Income
726 VIEWS

Tuesday, March 31, 2020 / 9:03 PM / Zedcrest Capital / Header Image Credit: China Daily

Below are highlights of trading activities in the fixed income and forex market on March 31, 2020

FGN Bonds

Activity in the Bonds Market picked up in the second trading session of the week, as market participants settled down into remote trading following the shutdown of the country's two major states. Investors kept their attention at the belly of the curve, mostly the 2027s and 2028s maturities, with scarce offers struggling to fill client demand. We also noted a few trades executed at the tail end of the curve, most especially the 2037s. Yields compressed by an average of c.4bps across the benchmark bond curve.

We expect the bond curve to remain flat in the short term, as the market direction remains unclear. We expect pockets of demand to persist from local investors as they look to reinvest maturating funds.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
14.50 15-Jul-21	7.81	5.35	(0.01)
16.39 27-Jan-22	9.17	6.33	0.10
12.75 27-Apr-23	11.55	10.15	0.00
14.20 14-Mar-24	11.61	10.94	0.00
13.53 23-Mar-25	12.42	11.34	0.04
12.50 22-Jan-26	12.56	12.22	(0.12)
16.29 17-Mar-27	12.75	12.33	0.00
13.98 23-Feb-28	12.94	12.55	(0.10)
14.55 26-Apr-29	12.89	12.48	(0.18)
12.15 18-Jul-34	13.08	12.52	0.00
12.40 18-Mar-36	13.00	12.53	(0.12)
16.2499 18-Apr-37	13.13	12.74	(0.13)
14.80 26-Apr-49	13.18	12.81	0.00

Treasury Bills

The Treasury Bills market also got an adrenaline shot of activity, as banks looked to invest liquidity off the back of the CRR refund (c.N310bn) received from the CBN. Demand was persistent for mid- to long-dated maturities, driving rates further down by as much as 15bps. Yields however compressed by an average of c.45bps across the OMO curve.

The NTBs traded on a quiet note, with very little volumes passed. Bids retreated at the short end of the NTB benchmark curve, as the market gears up for the NTB auction coming up tomorrow. Yields rose by an average of c.132bps across the benchmark NTB curve.

We expect demand for OMO bills to persist for the remainder of the trading week, supported by buoyant system liquidity as well as incoming OMO maturities. NTB flows are expected to remain low, as the bi-weekly PMA tomorrow takes center stage.

Primary Market Auction Expectation
NTB - 01 April 2020
Tenor	Offer (N'bn)	Expected Rate (%)	Previous Rate (%)
91 days	10.00	2.00 - 2.60	2.30
182 days	17.60	3.20 - 3.80	3.40
364 days	68.08	4.30 - 5.50	4.60

Benchmark OMO Bills
Description	Bid (%)	Offer (%)	Day Change (%)
NGOMO 5/14/2020	13.00	11.50	0.75
NGOMO 6/4/2020	15.00	11.00	0.00
NGOMO 7/2/2020	15.00	11.00	0.00
NGOMO 8/13/2020	13.00	11.00	(0.20)
NGOMO 9/3/2020	12.80	12.00	(0.45)
NGOMO 10/1/2020	15.00	12.00	0.00
NGOMO 11/03/2020	14.00	12.00	(0.20)
NGOMO 12/01/2020	15.00	13.60	0.00
NGOMO 01/05/2021	13.95	13.65	(0.15)
NGOMO 02/02/2021	13.95	13.65	(0.15)
NGOMOB 0 03/02/21	13.85	13.50	(0.15)
Benchmark NTBills
Description	Bid (%)	Offer (%)	Day Change (%)
NIGTB 2-Jul-20	5.50	1.00	2.50
NIGTB 1-Oct-20	6.00	1.75	2.25
NIGTB 12-Nov-20	6.00	2.00	2.00
NIGTB 14-Jan-21	6.00	2.00	0.00
NIGTB 11-Feb-21	15.00	11.00	0.00

Money Market

Interbank Money Market rates dropped today, as the system liquidity opened at c.N412bn positive. This 119% increase was due to the CRR adjustment done by the CBN closing yesterday, which was effectively a net inflow of c.N310bn. OBB and OVN rates dropped by c.600bps on the average, to close at 8.50% and 9.83% respectively.

We expect rates to remain sub 10.00% for most of the week, as the CBN takes preference CRR over OMO auctions to manage excess system liquidity levels.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	8.50	14.83
Overnight (O/N)	9.83	15.33

FX Market

The Naira made gains against the greenback in today's trading session, appreciating by c.1.70% to close at N385.55/$ with traded volumes of c.$80m also up by 133% D/D. The CBN official Spot and SMIS rates remained unchanged at N361.00/$ and N358.51/$ respectively.

The Naira continued its slide at the parallel market, depreciating further by N3 and N8 to close at N412.00/$ and N428.00/$ as supply continues to dry up in light of the lockdown of Lagos and Abuja.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	361.00	361.00
CBN SMIS	358.51	358.51
I&E FX Window	385.55	392.18
Cash Market	412.00	409.00
Transfer Market	428.00	420.00

Eurobond

Volatility in the NGERIA Sovereign tickers continued to persist, as the fall in global oil prices continues to negatively impact the country's sovereign revenues. Yields expanded by an average of c.3bps across the sovereign yield curve, despite gains seen at the belly of the curve (the 2030s to 2032 maturities). We expect local investors to provide support for the sovereign papers as they provide higher yields than their local counterparts.

The NGERIA Corps tickers continue to trade flat, as investors stay risk-off on the tracked papers. The SEPLLN 2023s posted some gains, dropping by gaining 8bps D/D.