Money Market Review

Contrary to deficit opening balances throughout the previous week, aggregate system liquidity improved this week as liquidity levels opened in a surplus position on all trading sessions save for Monday when opening balance stood at a deficit of N123.1 billion. Accordingly, Open Buy-Back (OBB) and Overnight (O/N) rates eased 22.8 per cent and 21.7  per cent  week on week (W-o-W) respectively but remained in double digit levels.

On Monday, aggregate liquidity level in the system was buoyed by a Federal Government bond coupon inflow of over N40.0billion which ensured a 10.1 per cent and 8.2 per cent points decline in OBB and O/N (O/N) lending rates to 26.2 per cent and 28.8 per cent respectively. Rates moderated further to 17.3 per cent and 18.4 per cent respectively on Tuesday and eventually settled at 10.3 per cent and 11.8 per cent by midweek as system liquidity further improved.

However, dealers at Afrinvest  West Africa Limited  said an open market operation (OMO) mop-up worth N201.0billion coupled with Treasury (T)-bills auction debits for Wednesday’s Primary Market Auction (PMA) drove OBB and O/N rates 6.5 per cent and 6.3 per cent points higher to 16.8 per cent and 18.1 per cent on Thursday.

Despite the OMO mop-up on Friday (of N207.1bn), OBB and O/N rates moderated on Friday down 3.3 per cent and 2.8 per cent to 13.5 per cent and 15.3 per cent respectively. This could be attributable to about N200.0billion Federation Account Allocation Committee (FAAC) inflow which had earlier hit the system.

On Monday, average T-bills rate rose 10 basis points (bps) to 17.2 per cent (from 17.1% on Friday). Average rate however dropped 12bps points on Tuesday to settle at 17.0 per cent amid speculation on the outcome of the MPC meeting.

The impact of Wednesday’s T-bills auction on system liquidity was however offset by a net T-bills maturity of N90.9billion and an OMO maturity of N149.5billion on Thursday.  Traders said average T-bills rate closed the week at 17.5 per cent on Friday, down 41bps W-o-W.

Foreign Exchange

The naira appreciated 0.3 per cent W-o-W at the interbank market as the Monetary Policy Committee (MPC) kept policy rates constant during the week. Interbank market spot rate appreciated on Monday as the local unit strengthened to N307.25/$1 from N308.69/$1 on Friday following a S$1.5 million worth of foreign exchange (FX) intervention by the Apex Bank. Nonetheless, the Naira weakened to N310.08/$1 and N313.07/$1 on Wednesday and Thursday despite further intervention by CBN on both trading days.

However, the domestic currency rallied in the interbank to close the week at N307.79/$1 on Friday. Compared to $25.4 billion as at 30th August 2016, Gross External Reserves stands at $24.7 billion as at 22nd September 2016, down 2.8 per cent month to date.  At the parallel market, the naira opened the week flat on Monday but appreciated to N424.00/$1 on Tuesday. However, parallel market rate tumbled 2.3 per cent W-o-W as the domestic currency closed the week at N435/$1 on Friday relative to N425/$1 in the previous Friday.

Activities in the futures market however improved as the total value of open contracts rose $159.3 million to $3.4 billion from $3.2 billion penultimate week. Investors were more interested in the August-May 2017 instrument as the value of open contract on the instrument increased to  $38.53 million to $102.87 million.

The NGUS-FEB 2017 instrument trailed closely appreciating $34.61 million. Also, the August-October 2016 and NGUS-SEPT 2016 instruments recorded $23.91 million and $20.19 worth of buy interest during the week. The NGUS-APR 2017 and the NGUS-JUN 2017 contracts however saw the lowest patronage with value of open contract rising $0.51million apiece compared to the previous week where they witnessed the most buying interest.

Bond Market

Contrary to previous weeks, activity level in the bond market picked up this week amid bullish sentiment, as average yield across benchmark bonds declined on all trading days and by 28bps W-o-W on the back of increased buying interest, particularly at the longer end of the curve.

On Monday, average yield across benchmark bonds dipped 11bps points to close at 14.9 per cent (from 15 per cent on Friday) as interest in the January 2026 and March 2036 instruments increased. This trend was sustained on the second trading session of the week as average yield further declined 7bps to close at 14.8 per cent on Tuesday.

Despite the MPC’s decision to maintain status quo on key rates, interest persisted on Wednesday, as average yield shed 17bp across benchmark bonds to close at 14.7 per cent. Average yield further declined to 14.6 per cent on Thursday, eventually settling at 14.7 per cent.

“We think improved liquidity level contributed to the drop in yields this week, but anticipate a reversal in next week’s trading sessions as the central bank has maintained its policy tightening stance,” Afrinvest stated in a note to investors.