All eyes on CBN to resume OMO auctions, but investors look to maturing N567.7bn bills
For liquidity boost To pressure yields in secondary market Investors, analysts expect naira to trade at similar band across different FX segments. Naira strengthened w/w as CBN continues its injection of more liquidity into retail FX market
The CBN spot rate traded flat all week at N379 to a dollar while the rate at the parallel market gained N2 from the previous week at N465 to a dollar. While at the Investors & Exporters (I&E) Window the NAFEX rate appreciated N1 week on week to close at N385 per dollar.
Furthermore, weekly turnover at the segment advanced 23.1 per cent to $432 million from the $350.9 million recorded in the previous week. On the other hand, the CBN is still committed to its weekly forex sales to BDCs, which is expected to inject more liquidity to the foreign exchange market’s retail segment.
Similarly, at the FMDQ Securities Exchange FX Futures Contract Market, the total value of open contracts settled at $11.1 billion and up 1.3 per cent ($145.9 million) from the previous week. The SEP 2021 instrument (contract price: N420.09) recorded the highest demand with an additional subscription of $43.4 million, putting the total value at $131.1 million. Meanwhile, the MAR 2021 (contract price: N403.06) instrument saw the least buy interest at $3.94 million with a total value of $1.5 billion.
In the money market last week, the interbank rates –
OBB and OVN – opened the week lower at 3.0 per cent and 4.0 per cent from prior week respectively from the close of 10.3 per cent and 11.5 per cent respectively despite system liquidity falling to N194.7 billion last Monday from N908.1 billion at the close of the week before. The rates declined significantly to 1.0 per cent and 1.8 per cent as inflows from maturing OMO instruments entered the system last Thursday. Meanwhile, by the close of the week, the rates stood at 1.0 per cent and 1.6 per cent as system liquidity closed at
N335.1 billion.
In a related development, the CBN offered a total of N114.0bn across the short, mid and long-tenor instruments at the primary market auction on Wednesday, in a bid to absorb liquidity from maturing treasury bills. The instruments
were oversubscribed at an aggregate bid-to-cover of 3.1x as subscriptions totalled N348.3 billion and the highest demand was recorded at the longest tenor with bid-to-cover ratio of 3.7x. Also, instruments worth N134 billion were sold across the three maturities at marginal rates of 1.08 per cent, 1.49 per cent and 2.80 per cent respectively, slight declines from respective rates of 1.09 per cent, 1.50 per cent and.3.05 per cent recorded at the previous auction.
Consequently, in the secondary market, the performance turned bullish as average yield across tenors declined 22 basis points week on week to 1.7 per cent from 1.9 per cent a prior week. Significant buying interest was recorded at the mid-end of the curve as yields fell by 48 basis points to 1.6 per cent. Yields also declined at the long end by 32 basis points to 2.4 per cent while shortterm yields rose by 13 basis points to 1.2 per cent.
Similarly, upbeat performance remained in the domestic bonds market with the week ending positive as average yield declined 23 basis points week on week to 6.7 per cent.
However, last week, yield declined only on Tuesday after rising on Monday and Wednesday while closing flat on other trading sessions. Across tenors, the short-term bond saw the most demand as yield dropped 55 basis points while yields on medium and long-term bonds also fell 30 basis points and 12 basis points week on week respectively.