Investors bearish on T-bills, bonds amid rising inflation, but naira stable
Analysts project steady rates CBN mop-up with N20bn injection Exchange rates to maintain band across FX market
Foreign Exchange Market
The naira traded flat at the Central Bank of Nigeria (CBN) forex spot market settling at N379 to the dollar week on week, while in the parallel market the domestic currency appreciated by N3 from the previous week’s close at N482 to the United States’ greenback.
Elsewhere in the Importers’ and Exporters’ (I&E) window, the naira depreciated by N2 from the previous week, closing at N411 to the dollar as activity level in the I&E window rose by 60.6 per cent to N292.2 million from N181.9 million in the previous week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts increased by 1.6 per cent ($82.8m) to $5.3 billion as the April 2022 instrument (contract price: N437.88) saw a significant gain as there was an increase of 281.0 per cent to $85.7 million in the total value. The June 2021 instrument (contract price: N422.08) recorded the least buying interest as total value rose 1.4 per cent to $283.6 million.
Treasury Bills Market
The week’s trading in treasury bills opened with liquidity levels rising compared to the previous week’s close. And the week ended higher at N599.3 billion, despite OMO and T-bills auctions.
At the T-bills auction on Wednesday, the CBN sold instruments worth N153.4 billion, N83.8 billion higher than the amount on offer. Stop rate for the 364day instrument inched higher by 100 basis points to 9.0 per cent while the 91 and 182-day instruments remained at 2.0 per cent and 3.5 per cent respectively. Strong demand was sustained across board at a bid-to-cover ratio of 1.0x, 3.1x and 4.4x for the 91, 182 and 364-day instruments respectively.
On Thursday, the CBN mopped up N100 billion via OMO auction, higher than the week’s maturities of N20 billion. From the result, demand levels were high with subscription at N92.2 billion compared to N20 billion offered. This implies an oversubscription of 4.6x with the 362day instrument enjoying the most demand. Rates stayed untouched at 7 per cent, 8.5 per cent and 10.1 per cent for the 89, 187 and 362-day instruments respectively.
Accordingly, open buyback and overnight (OVN) rates moved in line with system liquidity dynamics and opening the week lower at 12 per cent and 12.3 per cent respectively. On the other hand, the OBB and OVN rates closed the week high at 25.0 per cent and 28.3 per cent respectively despite robust liquidity level. Similarly, the average T-bills yield in the secondary market closed the week at 4.8 per cent, up 4 basis points from the prior week. The 91 and 364day instruments saw selloffs as yield rose 8 basis points and 10 basis points week on week respectively while the yield on the 182day instrument fell 5 basis points.
The Bonds Market
Elsewhere, the bearish sentiment in the local bonds market was sustained as the average yield trended higher on all trading sessions due to investors’ reaction to the rising headline inflation and CBN’s OMO and T-bills auctions. Accordingly, the average yield across tenors rose 88 basis points from the previous week to close at 11.2 per cent. The short tenor instruments recorded the most sell-offs as the average yield rose 100 basis points week on week. Similarly, the long and medium tenor instruments inched higher by 88 basis points and 81 basis points week on week respectively.
The performance level in the sub-Saharan Sovereign Eurobonds was largely bullish, sustaining the prior week’s bullish performance as average yield fell 41 basis points from the previous week to close at 7.4 per cent; resulting from the interest in emerging market assets led by the Zambian (2.0 per cent), Senegalese (1.1 per cent), Kenyan (0.2 per cent) and South African (0.2 per cent) instruments.
In addition, all instruments, save the Ghana 2023, showed a negative year to date price change with the Zambia 2022 instrument recording the highest decline of 46.5 percentage points while the Senegal 2021 instrument had the lowest year to date price change of 0.4 percentage points week on week.
Meanwhile, the sentiment in the Nigerian Corporate Eurobond was largely bullish as average yield fell 9 basis points from the prior week to close at 4.3 per cent. The instrument with the most buying interest was Eskom Holdings SOC Limited 2025 (down 50 basis points to 4.9 per cent) while Access Bank 2021 had the most sell-offs (advancing 96 basis points to 1.6 per cent). Nonetheless, Bayport Management 2022 and Ecobank Transnational 2024 instruments were the best performers year to date, up 11.3 percentage points and 6.8 percentage points respectively.