Fixed Income Market Monitor- The Open Buy Back Rate (OBB) Rose by 6.08% to 15.00% WoW

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Monday, July 23, 2018 /11:30AM/ Anchoria AM Research

The money market rate increased last week as the Overnight rate (OVN) and Open Buy Back rate (OBB) rose to 15.67% and 15.00% respectively. Consequently, the average money market rate increased by 6.17% to settle at 15.34% as system liquidity reduced due to fortnightly Retail FX Auction and first Yuan retail auction conducted by the CBN on Friday despite an inflow from T-bills maturities (N595.1bn), Bond coupon payment (N34.71bn) and Primary Market Repayment (N71.36bn) 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 this week we expect the rates to moderate.
 

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Forex: USD/NGN

The CBN Official rate rose by 0.02% during the week to close at N305.85/$ while the rate in the Investors and Exporters’ FX Window rose by 0.12% to close at N361.60/$. Naira at the parallel market fell by 0.28% to close at N360.00/$ (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 at a reduced rate and funds remain easily accessible through the NAFEX window.
 

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Commodities

The Brent Crude oil and WTI crude oil fell by 2.26% and 0.77% to close at $73.07 per barrel and $70.46 per barrel respectively despite Saudi Arabia’s reassurance that it will not flood the global market.

The fall in the crude oil price can be attributed to: the escalating trade war between the US and China rattling the global financial markets; US flexibility in sanctions on Iranian Crude Oil; and Increase Oil output from Libya.
 

Fixed Income 

Bond

The Bond market traded on a mixed note last week as bullish sentiments were witnessed on the short end of the curve while the longer tenor bonds saw some sell off from domestic investors. The demand was well pronounced in 2027 bonds. The average yield in the bond market fell by 3bps to close the week at 13.85%.

However, the bond market was relatively active last week as the total value of transactions rose to N202.9 billion from N162.1 billion respectively in the previous week.

We expect a mixed reaction this week as the National Bureau of Statistics (NBS) releases June 2018 Inflation Report on Monday; CBN holds its bi-monthly Monetary Policy Committee (MPC) meeting on Monday and Tuesday; and as Debt Management Office conducts FGN Bond Auction on Wednesday. The DMO is expected to offer between N75 billion and N105 billion worth of bonds to investors. 

Secondary Market

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Treasury Bills 

Due to the relatively buoyant system liquidity in the earlier part of the week, the treasury bills market traded on a bullish note. Consequently, the average yield fell by 32 bps to close the week at 11.86%. Market activities was relatively active as value of transactions rose to N1.20 trillion from N1.07 trillion in the previous week. 

Last week, CBN floated OMO on 91 days and 210 days T-Bills maturities at 11.05% and 12.15% with a total subscription of N60.77bn and N435.48bn respectively.
 

Primary Market

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Secondary Market

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