CBN’s auction activities distract investors as T-bills stay bearish, bond sell-offs continue
Naira stability largely expected despite gaining N2 w/w in the street
IN THE FIXED INCOME AND MONEY MARKET, sentiment remains sell-side driven as investors and traders maintained a risk-off stance to the market; with their focus solely on the auction activities of the apex bank. Given the current liquidity levels in the market, market analysts are expectant of bearish trading across the bond and T-bills market while neutral trade is anticipated in the OMO market this week as OMO investors rebalance their portfolios in anticipation of the upcoming primary auctions.
Foreign Exchange MarketAcross
the currency market, rates traded within similar bands as the past week with the CBN spot rate trading flat at N379 per dollar all week while the currency appreciated N2 week on week at the parallel market to N483 to a dollar on the news of the extension of the CBN’s “Naira 4 Dollar scheme”. At the Investors & Exporters (I&E) Window, the NAFEX rate depreciated N0.33 week on week to N410.33 per dollar while the activity level in I&E Window improved as total turnover jumped 39.1 per cent or $106.4 million to $378.3 million.
At the FMDQ Securities Exchange FX Futures Contract Market, the total value of open contracts settled at $4.7 billion, increasing by $87.8 million from the prior week. The April 2022 instrument (contract price: N436.18) had the most demand with an additional subscription of $69.0 million putting the total value at $209 million. Meanwhile, the August 2021 instrument (contract price: N424.72) had the least demand as the total value settled at $468 million.
Money Market
In the money market, the Open Buy Back (OBB) and Overnight (OVN) rates declined week on week.
In spite of the N30 billion OMO maturities, the system liquidity fell to N225.8 billion week on week from N275 billion. Consequently, the OBB and OVN closed the week lower, down 12.8 percentage points and 12.5 percentage points to settle at 14.8 per cent and 15.3 per cent respectively from 27.5 per cent and 27.8 per cent from the previous week’s close.
Elsewhere, there was a bearish performance in the treasury bills secondary market, as average yield rose 25 basis points week on week. Across the market, the short end of the curve remained flat week on week. Alternatively, the mediumend of the curve rose by 77 basis points while the longend of the curve fell mildly by 1 basis point week on week. With the anticipation for a uniform rate in the Tbills secondary market, it is suspected that the CBN may conduct an OMO auction as the subsequent OMO maturities of N90 billion will impact system liquidity levels.
Bonds Market
The local bond market sustained its bearish momentum in the first week of May with sell interest across the curve. Consequently, investors continue to wait on the side-line in anticipation of the next bond auction slated for 19th May 2021. Consequently, the average yield rose 44 basis points to 12.3 per cent. Also, there were sell-offs across tenors with medium-end of the curve advancing the most as yield inched higher by 59 basis points week on week. Also, yields on the short and long-end of the curve rose 49 basis points and 22 basis points week on week, respectively.
Furthermore, the performance in the sub-Saharan Sovereign Eurobonds market was bullish as average yield declined 232 basis points week on week to 4.8 per cent following strong demand for the Zambian 2022 instrument which was yield down 378 basis points from the previous week. Also, the Zambian 2024 and 2027 instruments enjoyed buying interest with yield contraction of 180 basis points and 95 basis points from the prior week, respectively. On the contrary, sell pressures in the Ghanaian 2022 instrument continued this week as yield rose 31 basis points.
Meanwhile, the African Corporate Eurobonds market closed the week on a positive note as average yield declined 6 basis points week on week to 4.4 per cent. The positivity was driven by a 34 basis points and 26 basis points week on week decrease in yield on the Access Bank 2021 and UBA 2022 instruments respectively.