Fixed Income Market Monitor – Overnight Rate Fell to 833%

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Monday, August 20, 2018  /`01:35 PM  / Anchoria AM Research                                                                   

Money Market

The money market rate decreased last week as the Overnight rate (OVN) and Open Buy Back rate (OBB) fell to 8.33% and 7.33% respectively. Consequently, the average money market rate decreased by 1.01% to settle at 7.83% as system liquidity increased to c500bn due to inflow from OMO T-Bills maturity of cN514bn, T-Bills maturity of cN33.38bn and CBN refund from retail FX provision of cN150bn despite an outflow from Wholesale, Invisible & SME FX auction of $210mn, OMO T-bill sales of cN153.54bn, Bond auction of cN39.7bn, T-bill auction of cN33.38bn and retail FX bid (Yuan and USD) during the week.

We expect rates to inch up on Monday as banks are expected to fund for another round of FX sales in the Wholesale, Invisibles and SME Market, however with the inflow from FAAC next week coupled with Salah break on Tuesday and Wednesday, we expect to be relatively stable.

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Forex: USD/NGN

The CBN Official rate rose by 0.03% during the week to close at N306.10/$. Also, the rate in the Investors and Exporters’ FX Window fell by 0.14% to close at N362.50/$. Naira at the parallel market remained unchanged to close at N360.00/$ (using the Everdon BDC Rate).

We expect rates in the parallel market to remain constant as the apex bank continues to supply FX into the market coupled with its frequent Wholesale and Retail SMIS programme.

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Commodities

The Brent Crude oil and WTI crude oil fell by 1.35% and 2.54% to close at $71.83 per barrel and $65.91 per barrel respectively amidst trade war between United States and China coupled with increase in US Crude Oil inventories.

Also, commodities traders were more fixated on the financial crisis in Turkey due to the crisis impact on other emerging economies.

We expect commodities market to take a new shape this week as China and US resume trade talks this week.

Fixed Income

Bond

The Bond market traded on a bearish note last week as sell offs were witnessed on all tenors. The 2036 and 2028 bonds are the most traded bonds during the week with N35.06bn and N72.63 volume traded respectively. This can be attributed to the following: continued foreign investors sell off in emerging markets due Turkey’s financial crisis, and high spot rate witnessed at the auction conducted during the week. The average yield in the bond market rose by 48bps to close the week at 14.66%.

During the week, the auction witnessed an increase in the stop rate from the previous auction:

5 years Bond: Rose from 13.69% to 14.39%

7 years Bond: Rose from 14.00% to 14.60%

10 years Bond: Rose from 14.30% to 14.69%

 

Bond Auction

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Secondary Market

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Treasury Bills

Despite an increase in system liquidity during the week, the treasury bills market traded on a bearish note. Consequently, the average yield rose by 20bps to close the week at 12.20%. Market activities was relatively active as value of transactions rose to N972.99bn from N762.42bn in the previous week.

Primary Auction Result:

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Secondary Market

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