System liquidity opened with a balance of N22.3 billion on Monday last. Week. Thus, Open Buy Back (OBB) and Over Night (O/N) rates settled at 19 per cent and 21.8 per cent respectively on Monday. Rates declined on Tuesday as OBB fell to 17.5 per cent while O/N rate slid to 18.6 per cent following an improvement in liquidity levels which settled at about N25 billion.
The downtrend in rates lingered into Wednesday, with no major inflow or outflow from the system as OBB and O/N trended lower to 17 per cent and 18.1 per cent. However on Thursday rates rose, though at tight band, to settle at 16.3 per cent (OBB) and 17.9 per cent (O/N).
According to analysts from Afrinvest West Africa Limited, the uptrend was sustained on Friday given a liquidity balance of N62.8 billion as OBB and O/N rate rose to 18.2 per cent and 18.9 per cent following an open market operation (OMO) auction worth N100 billion of which only N74.6 billion was sold at 18 per cent by the CBN. Consequently, money market rates slid 4.8 per cent (OBB) and 6.7 per cent (O/N) W-o-W respectively.
The treasury bills market opened the week on a bearish note as average T-bills rates settled at 16.9 per cent, 1.2 per per cent lower than the previous Friday. Rates in the T-bills market further declined on Tuesday to eventually settle at 16.4 per cent on Wednesday.
By Thursday, the downtrend was reversed as average rates rose to 16.7 per cent and 16.9per cent on Thursday and Friday respectively. As a result, average T-bills rate declined 1.2 per cent W-o-W. Across the T-bills Afrinvest said term structure, nine months and 12 months tenors remain the most attractive with rates closing respectively at 17.8 per cent and 17.6 per cent on Friday.
Dealers expect rates to trend in line with liquidity dynamics in the coming week as interest in T-bills and OMO instruments currently trading at attractive rates strengthens.
The local unit opened the week stronger at the interbank market, as spot rates strengthened to N308.73/$1 on Monday from N316.55/$1 on Friday and further appreciated to N305.18/$1 on Tuesday. The naira however weakened to N316.84/$1 on Thursday before eventually settling at N314.95/$1 on Friday following the decision of the CBN to ban nine deposit money banks (DMBs) from the interbank market on Wednesday.
However, parallel market rates tumbled 3.6 per cent W-o-W as the greenback exchanged for the naira at N412/$1 on Friday (26/08/2016) relative to N397/$1 in the previous Friday. Overall performance of the domestic currency was pressured by volatility in the currency market which was triggered by the sanction imposed on nine DMBs by the Apex Bank due to alleged refusal to remit $2.3 billion to the TSA account.
In the futures market, the AUG 24 2016 contract with a notional value of $152.5 million at $/N310, matured and was settled on the FMDQ platform on the said maturity date. This was replaced by the CBN with a new 12-month contract (AUG 16 2017), with value of open contract offered at $41 billion at N244/$1. In addition, new rates were published for the existing one-month to 11-month contracts.
“We believe that the foreign exchange market will continue to be pressured in the interim, especially at the parallel market, as liquidity in the official market remains a concern,” Afrinvest analysts said.
Consequent on the bearish sentiment that has persisted in the equities market, investors’ interest has turned towards the fixed income market. However, buying interest has remained on shorter tenor T-bills instruments given the current attractive yield environment and as a result, activities in the longer-dated bond market have remained relatively soft and this persisted last week.
Compared to penultimate Friday, average yields across benchmark instruments declined 0.9 per cent to 15.1 per cent on Monday. On Tuesday, as trading activity remained marginal, average yields across benchmark instruments slid 0.1 per cent to settle at 15 per cent. On Wednesday however, marginal sell pressure drove yields 2 basis points (bps) higher.
Yields on bonds closed flattish on Thursday but eventually rose to 15.1 per cent on Friday, lower by 0.9per cent W-o-W broadly due to the bullish sentiment on Monday.
Dealers expect investors to trade cautiously in opening trades this week ahead of July 2016 inflation data release.