Dealers from Afrinvest West Africa Limited observed that similar to Monday, another OMO auction was floated in which N60.0billion was offered while total subscription and allocation stood at N14.9billion. Rates eased further on Wednesday but closed higher on Thursday at 10.7 per cent (OBB) and 11.6 per cent (OVN) as debits for the T-bills Primary Market Auction (PMA) (N215.9bn) held midweek and OMO auction (N207.7bn) offset the impact of the OMO maturity (N140.0bn). OBB and OVN surged to 35.0 per cent and 38.0 per cent at the close of the week, up 23.7 per cent and 25.8 per cent week on week (W-o-W) respectively.
Activities in the Treasury bills market stayed soft last week on account of the weaker liquidity levels. On Monday, average rate on benchmark tenors settled at 17.6 per cent, marginally down 1basis point (bp) from the preceding Friday, as buy sentiment on shorter tenored instruments offset the impact of sell offs recorded across longer-dated bills. On Wednesday, there was a T-bills maturity of N140.9billion which was rolled over at the PMA. The Central Bank of Nigeria (CBN) offered N28.1billion of the 91-Day (subscription: N23.3bn, Allotment: N22.8bn), N23.7billion of the 182-Day (subscription: N33.2bn, Allotment: N24.7bn) and N89.1billion of the 364-Day (subscription: N502.9bn, Allotment: N168.4bn) instruments at marginal rates of 13.2 per cent, 16.8 per cent and 17.0 per cent respectively. Due to lower stop rates at the T-bills PMA and excess subscription for longer dated bills offered, sentiment was bullish on Thursday as average rate eased to 17.4 per cent but increased to 17.5 per cent on Friday, down 0.2 per cent W-o-W.
Foreign Exchange Review
The naira strengthened at all segments of the FX market last week as the CBN sustained pace of intervention while foreign investors positioned at primary market sale of T-bills held mid-week. At the official market, the CBN continued with its weekly SMIS sales worth US$100.0million for spot and short tenured forwards under 60 Days while the Official rate improved from N305.95/US$1.00 the preceding Friday to N305.90/US$1.00 on Monday before eventually closing the week at N305.85/US$1.00. This implies a marginal 3bps appreciation W-o-W. Similarly, at the interbank market, the domestic currency depreciated from N354.99/US$1.00 on Monday to N356.99/US$1.00 on Wednesday, but strengthened to N353.50/US$1.00 by the close of the week, up 0.4per cent W-o-W. At the parallel market, the naira exchanged for N369.70/US$1.00 on Monday, strengthened to N367.00/US$1.00 on Tuesday and traded flattish till the end of the week, up 0.5per cent W-o-W. Activities at the I &E window improved during the week as total market turnover improved to US$959.4million (as of Thursday 21st September) from US$803.1million in the prior week while NAFEX rate strengthened to N360.39/US$1.00 from N360.25/US1.00 previous week. The surge in activity level at the window reflects offshore investor interest in T-bills PMA held on Wednesday, dealers said.
In the FMDQ OTC Futures market, the total value of open contracts fell by US$68.2million to settle at US$2.6billion last week. The SEP 20 2017 instrument worth US$383.3million matured during the week and was replaced with the SEP 26 2018 instrument. The most subscribed instrument is the DEC 27 2017 (US$372.4m) which currently trades at N356.91/US$1.00 while the least subscribed is the MAY 30 2018 (US$52.2m) which trades at N359.41/US$1.00.
Despite the spate of FX interventions by the CBN, the external reserves have remained on the uptrend, reaching a 31-month high of US$31.9billion on 14/09/2017. This accretion to the reserves has been largely due to the stability in oil prices as well as improved production volumes and dealers believe this will give the CBN more impetus to continue with its interventions. In the coming week, we expect rates to remain stable at the various segments of the market, even as we look towards possible discussions on FX market at the MPC meeting, dealers from Afrinvest stated in a note to investors.
Bond Market Review
The bullish sentiment in the domestic bond market which has lasted for two weeks extended to this week’s trading sessions with increased buying interest observed across tenors. Earlier in the week, market performance was characterized by sell offs across tenors before the trend was reversed by mid-week and sustained till the end of the week. Activity on the first trading the day of the week was soft as average yield across Benchmark bonds opened the week flat at 16.3 per cent (same as the preceding Friday) as buy interest in the JAN 2022 instrument (-8bps) was broadly offset by sell offs in the MAR 2027 (+8bps) instrument. Average yield marginally increased 1bp on Tuesday as sell sentiment on the JUN 2019 (+7bps) and APR 2037 (+5bps) bonds outweighed interest in the JAN 2022 (-5bps) instrument. However, performance was bullish on Wednesday and Thursday due to improved Investor appetite on account of the expectation of lower stop rates at the T-bills PMA executed on Wednesday; hence, dealers observed increased buying across the yield curve which drove yields 6bps downward on average on Wednesday and a further 15bps on Thursday to eventually settle at 16.1per cent. The strong trend lingered into Friday as average yield closed the week at 16.1per cent, down 0.5per cent W-o-W. This week, dealers said they expect to see a bearish performance at the start of the week as investors free up funds to partake in the September Bond auction.
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