Markets Close on a Quiet Note as Tight System Liquidity pushes Funding Rates Higher

Proshare

Thursday, December 20, 2018/ 09:00PM / Zedcrest Capital


KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.28%

As at December 14, 2018. A c.2bps increase from 11.26% recorded in October 2018

MPR

14.00%

Left Unchanged for the 12th Consecutive Time at the Nov. 22, 2018 MPC Meeting

External Reserves

$43.12bn

As at December 19, 2018. A c.0.12% increase from $43.08bn on December 18, 2018

Brent Crude

$54.29pb

As at December 21, 2018. A c.2.27% decrease from $55.55pb on December 20, 2018

 

Bonds

The FGN Bond market traded on a quiet note to end the week with little volumes going in throughout the trading session. Investor sentiment weakened towards bond securities at current market yields. Consequently yields increased by a paltry single basis point across the curve to close the week.

 

We anticipate a very quiet FGN bond market going into next week, with further weakening of the yield curve expected as the demand flattens and some end-of-year profit taking trades expected.


Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

15.29

14.50

0.00

14.50 15-Jul-21

15.61

15.42

0.00

16.39 27-Jan-22

15.12

14.90

0.02

14.20 14-Mar-24

15.09

14.97

0.00

12.50 22-Jan-26

15.76

15.64

0.07

16.29 17-Mar-27

15.61

15.46

0.00

13.98 23-Feb-28

15.64

15.49

0.00

12.15 18-Jul-34

15.61

15.44

(0.01)

12.40 18-Mar-36

15.59

15.40

0.00

16.2499 18-Apr-37

15.49

15.33

0.00

Source: Zedcrest Dealing Desk


Treasury Bills

The T-bills market closed out the week on a bearish note, as tighter system liquidity pressured yields on the NTB curve. Yields ticked higher by c.9bps on the average across the NTB curve, despite the lack of an OMO auction offer by the CBN on the day.

In the coming week, the CBN will likely resume its daily OMO Auction offering to manage expected inflows from FAAC payments and OMO maturities. Due to the holidays and reduced trading sessions, we expect the CBN to be aggressive in the volumes on offer as it keeps a tight lid on system liquidity. 

 

Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

3-Jan-19

15.25

14.60

(0.25)

14-Feb-19

15.00

14.50

0.00

14-Mar-19

14.15

13.70

0.15

4-Apr-19

13.90

13.60

(0.10)

2-May-19

13.90

13.55

0.00

13-Jun-19

13.70

13.45

0.10

18-Jul-19

14.00

13.75

0.25

1-Aug-19

14.50

14.25

0.50

12-Sep-19

15.10

14.85

0.10

3-Oct-19

15.00

14.90

0.00

14-Nov-19

15.00

14.70

0.20

5-Dec-19

15.05

14.85

0.05

Source: Zedcrest Dealing Desk


 

Money Market

Money Market rates jumped higher by c.900bps as system liquidity tightened further on the back of outflows for the FX retail intervention by the CBN and Bond auction settlement. Open Buy-Back (OBB) and overnight (O/N) increased to 21.67% (from 13.58%) and 25.08% (from 14.83%), with System Liquidity estimated to close in a negative territory of c.N110bn.

We expect rates to open significantly higher in the coming week, as market participants provide funding for FX Wholesale interventions by the CBN. High funding rates should be short-lived due to inflows from November FAAC payments as well as OMO Maturities (N.588.89bn) expected later in the week. The CBN is also expected to aggressively mop up the excess liquidity, resuming its daily OMO auction offerings.

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

21.67

13.58

Overnight (O/N)

25.08

14.83

Source: FMDQ, Zedcrest Research

 

FX Market

At the Interbank, the Naira/USD rate remained unchanged at N306.95/$ (spot) and N359.24/$ (SMIS), while the NAFEX rate in the I&E window appreciated marginally by c.0.01% to close the week at N364.54/$ from N364.57/$ previously. Value traded at the I&E FX window increased by c.35.15% day-on-day, with a total trade turnover of $432.44mm traded in 514 deals, with rates ranging between N338.00/$ - N366.00/$.

 

Seasonal supply support the continued appreciation of the Naira at the parallel market. The cash rate appreciated further by c.0.33% to close at N362.80/$, while the transfer rate remained unchanged at N367.00/$.

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.95

306.95

CBN SMIS

359.24

359.24

I&E FX Window

364.54

364.57

Cash Market

362.80

364.00

Transfer Market

367.00

367.00

Source: CBN, FMDQ, REXEL BDC

 

Eurobonds

The NGERIA Sovereigns witnessed a quiet trading session, however with lower valuations as global oil prices continue to decline. Yields ticked higher further by c.3bps on the average across the curve.

 

Similarly, the NGERIA Corps saw little interest in the last trading session for the week, with no change recorded on the prices of the tracked tickers.




Proshare Nigeria Pvt. Ltd.



 Proshare Nigeria Pvt. Ltd.


 

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