Investors Panic as CBN Cuts off Long Tenor OMO Offering

Monday, March 04, 2019  11:58 AM / Zedcrest Capital

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KEY INDICATORS

Bonds

The FGN Bond Market traded on a mixed note, with yields compressing on the shorter end of the curve, in tune with decline in long tenor T-bill Yields. Offers however improved slightly on the mid to long end of the curve, as buying interests slowed from the tempo in the previous week.

We expect the market to remain largely order driven in the near term, with local players more likely to sustain profit taking at current levels.

Source: Zedcrest Dealing Desk

Treasury Bills

T-bill Yields trended slightly higher in today’s session on the back of the renewed OMO sale by the CBN which further compressed system liquidity levels. The longer end of the curve however remain depressed, falling lower by c.20bps, as absence of a long tenor OMO offering by the CBN fueled continued demand in the market for the long tenor bills.

Despite the absence of a long tenor offering, the OMO auction by the CBN was 1.13X oversubcribed on the 200bn offered. Demand was however skewed to the 192-day bills (N156.18bn sub.) which recorded a total sale of N113.20bn, with stop rate cut by 2bps to 13.48%. The CBN however sold the full subscriptions (N70.84bn) on the 94-day bill, with the stop rate held at 11.90%.

We expect the market to trade on a relatively flat note tomorrow, except for sustained demand expected on the longer end of the curve.

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market trended lower by c.2pct, despite the OMO and wholesale FX intervention by the CBN. The moderation in rates was majorly due to the inflows from FAAC on Friday and a significant boost to naira liquidity following heavy FX purchases by the CBN in the I&E FX window on Friday where the market turnover hit an all-time high of $1.8bn. The OBB and OVN rates consequently ended the session at 14.00% and 14.92% respectively.

We expect rates to remain relatively stable tomorrow, barring a further OMO sale by the CBN.

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rates closed the session at N306.85/$ (Spot) and N356.92/$ (SMIS). The NAFEX rate in the I&E window appreciated marginally to N360.98/$. At the parallel market, the cash rate remained unchanged at N358.00/$, while the transfer rate appreciated to N364.50/$.

Source: CBN, FMDQ, REXEL BDC

Eurobonds

Investors’ interests remained weak on the NGERIA Sovereigns, with yields marginally lower by c.1bp on the day. This was following slight sell witnessed mostly on the longer end of the curve.

In the NGERIA Corps, we witnessed firm interests for the FIDBAN 22s and SEPLLN 23s, while investors remained slightly bearish on the ACCESS 21s Subs.

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