Supply Of The Greenback Dwindles, Causing Value Of The Naira To Drop 6% In The Streets

Monday, April 27, 2020 / 7:47 PM / Zedcrest Capital / Header Image Credit: Pulse Nigeria

FGN Bonds

The Bond Market opened the week on a muted note, as yields ticked higher at the head of the curve amid tight system liquidity. The 'auction bonds' (i.e. 2023s, 2035s, and 2050s) bucked the trend with some demand witnessed on those papers. Yields expanded by c.22bps on the average across the benchmark bond curve.

We expect yields to remain pressured as system liquidity tightens, with some local investors expected to take advantage of elevated yields and cherry-pick some maturities at the head and belly of the curve.

Treasury Bills

Yields expanded for a second consecutive session as the markets still reeling from dwindling system liquidity, as local banks showed little interest in OMO bills offered by foreign portfolio investors. OMO rates expanded by c.71bps on the average across the benchmark OMO curve.

On the flip-side, rates on short-dated NTBs pushed down as retail-driven demand continues to filter into the market ahead of the bi-weekly auction. Rates across the benchmark NTBs compressed by c.35bps on the average.

We expect rates to remain on the rise for most of the week as tight system liquidity dims appetite for OMO bills at 10% levels.

Money Markets

A partial refund of last week's CRR debit to banks by the CBN eased funding pressures somewhat in the week's opening session. Banks opted for the funding from the Apex Bank's Standing Lending Facility (SLF) window, causing OBB and OVN rates to close lower at 14.57% and 15.50% respectively. System liquidity remains tight, estimated to close at just c.N28bn positive.

We expect rates remain tight and in the double-digit range for most of the week, as only OMO maturities of c.N30bn are expected to hit by Thursday.

FX Market

The Naira opened the week on a more active note, as the I&E FX closing rate posted at 0.85% loss in value to close at N386.25/$ amidst low traded volumes ($51.81million, down 17% down D/D). The CBN rates remained unchanged again for another consecutive session.

The Naira continued to weaken at the parallel market, losing 8.33% and 4.44% of its value at the cash and transfer rates respectively. Supply remains poor in the market, with the CBN focusing its supply to the bi-weekly Retail FX auction, pushing pent up demand to the streets.

Eurobonds

The NGERIA Sovereigns continued the losing streak for a second consecutive session as oil prices dipped again today below $20pbl. The volatility in oil prices and uncertainty surrounding the Nigerian Government's fiscal position continues to show in the pricing of the sovereign papers. Yields expanded further by another c.12bps on the average across the sovereign curve

The NGERIA Corps papers had a quiet session, with local demand concentrated on the FIDBAN 2022s.

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