Money Market Review

Rates in the money market traded within a band of 13.1 per cent  -16.2 per cent for Open Buy Back (OBB) and 14.1 per cent – 17.3 per cent  for Overnight (O/N) rate as liquidity levels remained tight during the week.

On Monday, the OBB and O/N rate settled at 12.7 per cent and 13.3 per cent, lower than the previous Friday as liquidity levels improved to N73.8 billion (from a negative position of –N45.6 billion on Friday). The CBN auctioned Open Market Operation (OMO) bills on Monday offering a total of N60 billion. Of the N60 billion on offer, only N16.3 billion was subscribed while N15.8 billion was allotted.

Dealers from an investment banking and research company, Afrinvest said that lesser allotment relative to subscription is tied to higher marginal rates quoted by investors.

To keep liquidity in check, the CBN auctioned OMO on all days save for Wednesday. OBB and O/N settled at 16.7 per cent and 17.3 per cent respectively on Friday, up 3.6 per cent  and 3.3 per cent week on work ( W-o-W).

Activity in the Treasuy-Bills market opened the week soft as investors awaited primary market auction slated for Wednesday. Accordingly, average yield steadied at 18.6 per cent  from Monday to Wednesday.  A total of N310.2 billion worth of T-Bills was rolled over at the auction on Wednesday, and investors continued to show strong appetite for these instruments which were all over-subscribed. Average yield settled at 19.1 per cent on Friday, up 2.2 per cent W-o-W.

In a circular released by the Debt Management Office (DMO) during the week, the minimum amount required for participation in T-Bills Primary Market Auction (PMA) was revised from N10, 000 to N50 million. Dealers believe this could potentially slow activities in the market.

Foreign Exchange Review

Following the implementation of the New CBN directive last week, parallel market rate appreciated to N455/$1 on Monday from N460/$1 the previous Friday. The local unit further improved to N450/$1 on Tuesday as the CBN continued its intervention to the official market to fulfill bids for Personal and Business Travel Allowance, School fees as well as Medical and Tourism Allowance. Interestingly, this trend was reversed on Thursday as street rates depreciated to N458/$1 and to N465/$1 on Friday. At the official market, rates marginally improved from N305.50/$1 on Monday to N305.25/$1 on Friday.

Total value of open contracts at the FMDQ OTC FX Futures market settled at $3.96 billion similar to the prior week. The APRIL 2017 instrument remains the most subscribed at $0.8 billion of the $1 billion on offer for the instrument. Since the introduction of the market in 2016, no instrument is yet to be fully subscribed and as such the liquidity need for which the market was created is yet to be fully realised.

“We expect official market rates to continue to trade within a tight band as the CBN sustains its intervention program, parallel market rate is however expected to pull southwards until demand and supply dynamics establishes new short term rate,” Afrinvest stated.

Bond Market Review

Activities in the local bonds market remained soft this week as investors’ concentrated on shorter term money market instruments. Nonetheless, benchmark bond yields trended southward, with fair buy interest observed during the week (save for Monday when average yield rose 13bps). Average bond yield across benchmark instruments opened the week at 16.3 per cent  and had dipped to 16.2 per cent  by Thursday, before settling at 16.2 per cent  at the end of the week, indicating a flat W-o-W performance.

Dealers expect the scheduled commencement of the FGN savings bonds on March 13, 2017 to deepen retail penetration and involvement in the local bonds market and also buoy activity level in the market.

Contrary to penultimate  week when positive sentiment filtered across Sub-Saharan African sovereign Eurobonds, performance was mixed last week. The repricing of instruments led to an increase in yields on the Nigerian, Ghanaian and South African sovereign bond instruments whilst the Gabon, Senegal, Ivory Coast and Zambian sovereigns enjoyed buy sentiment. Nonetheless, Nigeria’s FGN 2023 Eurobond remains the best performing sovereign Eurobond with a YTD return of 5.5 per cent.

Similarly, performance of the Nigerian corporate Eurobonds was mixed as yield fell on the ZENITH 2019 (down 47bps W-o-W) and FIRST BANK 2020 (down 12bps W-o-W) instruments. All Access Bank Plc’s instruments enjoyed positive sentiment with yield on ACCESS 2017, ACCESS JUN 2021 and ACCESS OCT 2021 declining 32bps, 46bps and 45bps respectively. On the flip side, sell sentiment was apparent on the FIDELITY 2018 (up 8bps W-o-W), GUARANTY 2018 (up 12bps W-o-W) and DIAMOND 2019 (up 29bps W-o-W). The DIAMOND 2019 and ACCESS 2017 Eurobonds remain the best & worst performer amongst the Nigerian corporate Eurobonds with YTD return of 13.2 per cent  and -0.1 per cent respectively.