Money Market Review

Aggregate system liquidity diminished last week on the back increased primary market activities. Money market rates moderated at the start of the week but rose sharply by Friday. Dealers said Open Buy Back (OBB) and Overnight (O/N) rates spiked from 15.3 per cent and 16.3 per cent on Monday to 103.3 per cent and 111.8 per cent on Friday, up 95.6 per cent points and 87.6 per cent points week on week (W-o-W) respectively.

According to Afrinvest West Africa Limited, a Lagos based Securities Company, this was driven by system liquidity opening balance, which opened at a surplus of N21.4 billion but closed at N8.5 billion on Friday. The impact of N236.8 billion Open Market Operation (OMO) which matured into the system during the week on liquidity level was offset by Wednesday’s bonds auction where the Debt Management Office (DMO) auctioned FGN bonds worth N95.0 billion at the primary market as well as OMO mop up worth N152.6 billion by the Apex Bank on Thursday.

Despite weaker system liquidity as well as lower rates at penultimate week’s Primary Market Auction (PMA), the Treasury Bills market enjoyed increased buy sentiment as average T-bills rate dropped 03 per cent W-o-W to close the week at 17.6 per cent on Friday. Average T-bills rate opened the week at 17.2 per cent and declined on all trading days of the week save for Wednesday when it rose 33 basis points (bps) to 17.1 per cent.

Foreign Exchange Market

According to dealers at Cowry Assets Management Limited, the Nigerian Naira appreciated in all foreign exchange market segments following interventions from CBN and improved dollar supply to the alternative market segments. CBN sold US$6 million to commercial banks at N304.75/US$ from Monday to Thursday. Consequently, the domestic currency appreciated w-o-w at the interbankmarket by 1.10 per cent toN319.56/USD.

Also, following weekly U.S dollar sales by IMTO, Travelex,to BDC’s,the Naira strengthened against the Greenback at the BDC and parallel (‘black’) market segments by 2.99 per cent and 2.11 per cent to N455/USD and N463/USD respectively.

Against the backdrop of improved foreign exchange supply,dealers said there was appreciation of the Naira for all dated forward contracts at the interbank Over The Counter (OTC)segment–the spot, 1 month, 3 months,6 months and 12 months forward contracts strengthened week-on-week by 0.72 per cent, 3.72 per cent, 4.46 per cent, 6.29per cent and 9.88 per cent to N304.50/USD, N316.58/USD, N324.31/USD, N333.15/USD and N349.83/USD respectively.

“This week, we anticipate stability in the foreign exchange market on improved forex supply,” the dealers said in a note to investors.

Other dealers observed that in the futures market, none of the 12 instruments on the Naira Settled OTC futures calendar has been fully subscribed despite the attractive prices of these instruments. The April 26 2017 instrument remains the most subscribed with open contracts valued at US$794.4 million as at 14th October. It is worthy of note however that a large amount of the open contracts of the instrument were subscribed before the contract price was adjusted to N265.50/US$1.00. Nonetheless, the attractive prices of these futures contract presents a hedging opportunity for foreign investors against currency risk and suggests a bullish outlook in the performance of the Naira by the CBN.


Bond Market Market

As expected, performance in the domestic bonds market was largely dictated by the primary market auction by the DMO. Average yield across benchmark bonds trended upwards marginally on the trading sessions leading to the DMO’s bonds auction but however declined in the sessions succeeding the auction. Accordingly, average yield eventually closed at 15.1per cent, up 0.1per cent W-o-W. On Wednesday, the DMO offered N35.0billion each of the JUL 2021, JAN 2026 and MAR 2036 instruments but allotted N10.0billion, N45.0billion and N40.0billion at marginal rates of 15.3per cent, 15.5per cent and 15.5per cent respectively. The auction was oversubscribed by 0.6 xs, with total subscription worth N173.3billion.

Performance in the Nigerian Corporate Eurobonds market mirrored penultimate week’s as sell sentiment persisted in the Fidelity 2018 (+1.0%) and Diamond 2019 (+66bps) instruments. Similarly, bargain hunting in both FBN 2020 and 2021 Eurobonds continued last week as yields on both instruments fell 3.8per cent and 2.2per cent respectively. Zenith 2019 (-1.0%) and Access 2017 (-84bps) instruments also enjoyed buy interests this week. Access Bank issued its new 5yr Eurobond (Access 2021) during the week at 10.75per cent yield. The Bank also extended the issuance period of the instrument from October 13th to October 18th. The issuer proposed to swap the outstanding July 2017 instrument at 102.0per cent premium to par for the Senior Access 2021 bond.

This week, Afrinvest expects bargain hunting in the FBN Corporate Eurobonds to continue even as buy interest in the Access 2017 instrument persists. The local bonds market is expected to stay soft as investors concentrate their attention at the shorter end of the curve ahead of the T-bills primary market auction.