OMO Auction: CBN Shocks the Markets, Raising Stop Rates to Double Digits

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Friday, February 05, 2021 / 10:13 AM / By Zedcrest Capital / Header Image Credit: iStock


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FGN Bonds

Yields on FGN Bonds continued its recent drop, despite a slowdown in market activity during the trading session. We saw improved bids across the curve but with not little supply to match which made trading a tad difficult. Despite this continued demand bonds at the long-end of the curve (2034s - 2037s) refused to break the 10.00% level, signalling the floor for which investors are considering holding these bonds. Consequently, yields compressed by c.7bps on the average across the benchmark curve.

 

Following the shock increase in short-term rates as a result of the OMO auction results, we expect the market to open weaker as participants demand higher yields for longer duration.

 

Benchmark FGN Bonds

 

Description

Bid (%)

Offer (%)

Day Change (%)

12.75 27-Apr-23

6.50

5.65

0.00

14.20 14-Mar-24

6.85

6.05

0.10

13.53 23-Mar-25

7.10

6.10

0.00

12.50 22-Jan-26

7.80

7.15

0.00

16.29 17-Mar-27

8.75

8.10

0.00

13.98 23-Feb-28

8.85

8.20

0.00

14.55 26-Apr-29

8.95

8.50

0.00

12.15 18-Jul-34

10.15

9.95

(0.15)

12.50 27-Mar-35

10.15

9.90

(0.05)

12.40 18-Mar-36

10.20

9.90

(0.05)

16.2499 18-Apr-37

10.20

9.95

(0.10)

9.80 24-Jul-45

10.20

9.95

(0.22)

14.80 26-Apr-49

10.30

10.05

(0.20)

12.98 27-Mar-50

10.25

10.05

(0.30)

 

Treasury Bills

The secondary market suffered a stall in trading activity as all eyes remained fixed at the OMO auction floated by the CBN. With OMO rates trading higher than the previous stop rates, expectations remained high for the Apex bank to move up its stop rate in line with the elevated levels. Offers flooded the streets, with no interest from local banks as interbank system liquidity remained tight. The long-dated (January 2022) papers remained offered well above 6.00% with no takers seen.

 

At the OMO auction, the Apex bank served the market a shocking notice by raising its stop rates by an average of 467bps across the three tenors offered. The stop rates for the 89-, 180- and 362-day tenors closed at 7.00%, 8.50% and 10.10% respectively, the highest levels seen in over 10months.

 

The recent move by the CBN can be seen as a plan to attract and retain offshore interest in Nigerian local instruments and as such ease pressure on its exchange rates. While this jump is significant, it remains to be seen if this while sufficient to attract fresh foreign flows into the market considering rates available elsewhere on the continent. We expect a choppy market opening Friday, as market participants scramble to price-in the auction results.

 

Benchmark OMO Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NGOMOB 0 03/02/21

6.00

0.03

0.00

NGOMOB 0 05/11/21

6.50

0.03

0.00

NGOMOB 0 06/08/21

6.50

0.04

0.00

NGOMOB 0 08/10/21

6.50

0.04

0.00

NGOMOB 0 09/07/21

7.00

0.04

0.00

NGOMOB 0 10/19/21

8.00

0.05

0.00

NGOMOB 0 11/02/21

8.00

0.05

0.00

NGOMOB 0 12/07/21

8.00

0.05

0.00

NGOMOB 0 01/13//22

8.00

0.05

0.00

 


Benchmark NT-Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NIGTB 0 02/11/21

6.00

0.03

0.00

NIGTB 0 03/11/21

6.00

0.03

0.00

NIGTB 0 04/29/21

6.00

0.03

0.00

NIGTB 0 05/13/21

6.50

0.03

0.00

NIGTB 0 06/10/21

6.50

0.04

0.00

NIGTB 0 07/01/21

6.50

0.04

0.00

NIGTB 0 08/26/21

6.75

0.04

0.00

NIGTB 0 09/09/21

6.75

0.04

0.00

NIGTB 0 10/14/21

8.00

0.05

0.00

NIGTB  0 11/11/21

7.00

0.05

0.00

NIGTB  0 01/11/22

8.00

0.05

0.00

NIGTB 0 02/11/21

6.00

0.03

0.00

NIGTB 0 03/11/21

6.00

0.03

0.00

 


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Money Markets

The interbank system liquidity dipped by c.40% opening Thursday (c.N138.40bn positive open) as the CBN continued to hit banks with regulatory debits. With expected OMO sales of c.N90bn cash value, the market went even tighter during the day, causing interbank rates to close higher at  12.50% and 13.00% OBB and OVN rates respectively.

 

With the eventual OMO sale hitting the market very late in the day, coupled with expected FX Retail auction debits we expect the interbank rates to close the week even higher amidst tight system liquidity.


Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

12.50

11.25

Overnight (O/N)

13.00

11.50

 

 

FX Market

The FX market stayed very quiet for the most of the trading session with rates staying unchanged across the different market segments except at the IEFX market where the Naira depreciated by 0.13k closing the day at N395.63/$ following an 11% drop D/D in traded volumes in that space.

 

FX Market

Current (N/$)

Previous (N/$)

CBN Spot

379.00

379.00

CBN SMIS

380.69

380.69

I&E FX Window

397.63

395.50

Cash Market

476.50

476.50

Transfer Market

489.00

489.00

 

 

Eurobonds

The NIGERIA Sovereigns continued to rally for a third consecutive session, as BRENT crude remained steady above $58.50pb. Most of the action was seen at the short-end of the sovereign curve, with yields on the 2022s and 20223s papers dipping by 13bps and 10bps respectively. The entire curve moved positively, compressing by an average of c.7bps at the close of trading.

 

The NIGERIA Corps tickers also saw yield gains during the trading session as demand for the papers strengthened. The UBANL 2022s and SEPPLN 2023s led the pack, as yields on those papers compressed by cc. c.18bps and c.72bps respectively.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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