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OMO Rates Continue To Plummet Amidst Excess System Liquidity

Bonds & Fixed Income	462 VIEWS
Bonds & Fixed Income
462 VIEWS

Monday, April 6, 2020 / 7:17 AM / By Zedcrest Capital / Header Image Credit: MChamber

Below are highlights of trading activities in the fixed income and forex market on April 06, 2020

FGN Bonds

The Bond Market stayed on course with the theme for most the week, a quiet session despite evident client demand. Bids improved across the benchmark bond curve with little volumes traded. We noted client interest extend beyond the 10-year benchmark as some volumes were picked on the 2036 and 2037 maturities. Yields compressed further by an average of c.6bps across the benchmark bond curve.

We expect the market to close the week on a bullish note, as investor demand persists along a recovery in global oil prices.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
14.50 15-Jul-21	7.75	5.28	(0.05)
16.39 27-Jan-22	9.02	6.28	(0.03)
12.75 27-Apr-23	11.55	10.22	0.00
14.20 14-Mar-24	11.60	11.00	(0.01)
13.53 23-Mar-25	12.38	11.37	0.00
12.50 22-Jan-26	12.55	12.24	0.00
16.29 17-Mar-27	12.74	12.35	(0.01)
13.98 23-Feb-28	12.69	12.45	(0.25)
14.55 26-Apr-29	12.88	12.48	0.00
12.15 18-Jul-34	13.08	12.53	0.00
12.40 18-Mar-36	12.92	12.54	(0.08)
16.2499 18-Apr-37	12.88	12.58	(0.25)
14.80 26-Apr-49	12.94	12.70	(0.10)

Treasury Bills

OMO bills continued to rally in today's session, supported by buoyant system liquidity levels. Local banks continued to demand bills across the OMO curve to reinvest OMO maturities for most of the session, which paused after the CBN announced an OMO auction an hour before trading close. We noted some resistance for rates below 13.00% on long-dated maturities, as market players expected higher stop rates at the OMO auction. Yields compressed further by an average of c.52bps across the benchmark OMO curve.

The OMO Auction was poorly demanded, as local and offshore players shied away from the auction, The CBN was only able to sell N4Bn out of N110bn offered across three tenors, cutting the stop rate to 12.7999% on the 348-day tenor.

There was some action in the NTB space, as the newly issued 1-year NTB traded at 3.70% (60bps lower than the auction stop rate).

We expect the demand of OMO bills to pick up some steam in the last trading session of the week, with the long-dated maturities possibly breaking resistance levels to trade sub-13.00%. The CBN could reattempt another OMO auction to mop up excess liquidity, if so, we expect a tighter bid range from market participants.

Primary Market Auction Results
OMO - 02 April 2020
Tenor	Offer (N'bn)	Subscription (N'bn)	Sale (N'bn)	Stop Rate (%)
75 days	5.00	Nil	Nil	No Sale
166 days	5.00	Nil	Nil	No Sale
348 days	100.00	21.00	4.00	12.7999

Benchmark OMO Bills
Description	Bid (%)	Offer (%)	Day Change (%)
NGOMO 5/14/2020	12.00	9.00	(0.50)
NGOMO 6/4/2020	12.00	9.00	(0.25)
NGOMO 7/2/2020	12.35	5.00	(2.65)
NGOMO 8/13/2020	12.45	11.00	(0.40)
NGOMO 9/3/2020	12.50	11.50	(0.25)
NGOMO 10/1/2020	12.75	12.25	(0.35)
NGOMO 11/03/2020	12.85	12.00	(0.70)
NGOMO 12/01/2020	12.85	12.50	0.10
NGOMO 01/05/2021	13.05	12.75	(0.05)
NGOMO 02/02/2021	13.15	12.75	(0.35)
NGOMOB 0 03/02/21	13.20	12.75	(0.30)
Benchmark NTBills
Description	Bid (%)	Offer (%)	Day Change (%)
NIGTB 2-Jul-20	6.00	0.50	0.00
NIGTB 1-Oct-20	6.00	1.00	0.00
NIGTB 12-Nov-20	6.00	1.00	0.00
NIGTB 14-Jan-21	6.00	1.00	0.00
NIGTB 11-Feb-21	6.00	1.00	0.00

Money Market

Money Market Rates dropped further today following OMO maturities and the CBN's failure to mop up substantial volumes. OBB and OVN rates declined by c.290bps on the average, to close at 2.67% and 3.08% respectively, as system liquidity is expected to close c.N700bn.

The CBN is expected to attempt a second OMO auction this week to manage excess liquidity, again we do not expect any major impact to Money Market rates.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	2.67	5.50
Overnight (O/N)	3.08	6.08

FX Market

Volumes continued to dwindle in the I&E FX window, down 59% from the previous day's session. The Naira appreciated by 0.66% to close at N383.00/$ at the I&E FX window, while the CBN Spot and SMIS rates remained statics.

The Naira stabilized a bit at the parallel market, with the Cash rate losing N1.00k to close at N416.00/$ while the transfer rate remained static at N430.00/$.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	361.00	361.00
CBN SMIS	358.51	358.51
I&E FX Window	383.00	385.55
Cash Market	416.00	415.00
Transfer Market	430.00	430.00

Eurobond

The NGERIA Sovereign finally got some reprieve as yields rallied following a 23% recovery in global oil prices. Oil prices spiked following a tweet by President Donald Trump suggesting an end-in-sight to the current price war between Saudi Arabia and Russia, and oil-related ticked followed suit. Yields compressed by c.45bps on the average across the sovereign curve.

Conversely, the NGERIA Corps tickers continued to weaken as investors weigh the negative impact of the COVID-19 pandemic on the performance on Nigerian companies. The UBANL 2022s were the biggest losers on the day, weakening by 4bps D/D.

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