System Liquidity Crashes Into Negative Territory, Freezing Trading Activities In the FI Space

Tuesday, July 07, 2020 / 8:41 AM / By Zedcrest Capital / Header Image Credit: Investopedia

FGN Bonds

The bond market opened the week on a very lethargic note with market interest shifting from the belly and tail to the head of the curve. The 23s most of the day's action, as it opened around 4.25% and shed c.25bps to close around 4.00%. The tail-end of the curve continued to feel some bearish pressure, with offers improving on most of the long-dated papers but with very little volumes crossed. Consequently, yields expanded by c.10bps on the average across the benchmark bond curve. 

We expect the general market sentiment to remain weak, as investors continue to stay on the sidelines at these yield levels, with some retail-sized orders expected only on short-dated papers.

Treasury Bills

The OMO bills space opened the week frozen as the net interbank system figure crashed into negative territory causing a flurry of the bears in the market. Trading opened one-way, with offers available across the OMO curve but with too-wide spreads on the few available bids making it more difficult to match trades. Most of the offers seen in the market were on the January papers (offered at 5.50%) and the newly issued 08th June bills (offered at 6.00%).  Subsequently, yields expanded by an average of c.26bps across the OMO curve. 

We expect to see more bears in the treasury bills space given the tight state of system liquidity.      

Money Markets

Liquidity in the Nigerian interbank market crashed to open the day at c.N96BN negative, with lots of banks scrambling for funds at the CBN's Standing Lending Facility (SLF) window. With banks comfortable at the SLF window, with no FX-related restrictions in effect, rates dropped slightly by c.250bps to close at 19.00% and 21.00% for OBB and OVN rates respectively.

We expect rates to remain elevated in the interim with no inflows expected to support system liquidity during the week.

FX Market

The FX market opened the week on a weak note as participants observed market reaction from CBN depreciating the retail FX rates from N360/$ to N380/$ levels in the last retail auction. All the FX market indices remained unchanged while the IEFX closed the day one-sided with most banks remaining bided at N388/$ to N390/$.

Eurobonds

The NGERIA Sovereign tickers traded on a calm note. Yields strengthened by an average of c.7bps across the curve, although we saw more offers for maturities around 2025s to 2047s. We also saw some slight retracements in yield for the Angola 2025s, which was better offered at 12.08% triggered by some profit-taking trades in the market.

The NGERIA Corps tickers also had a quiet session, with the only movement seen among the tracked papers were on UBA 2022s and ZENITH 2022s which compressed by 12bps and 48bps respectively.

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