Bullish T-Bills, slow bonds next, but investors play risk-off on Eurobonds
CBN to continue FX interventions as Naira gains N0.75k w/w on crude oil price rally Activity in bonds to slow with cautious trade; T-bills to continue bullish momentum
Barring any significant shock in the foreign exchange market and the continued intervention of the CBN in the currency space to maintain exchange stability, the local currency is expected to trade largely stable across all segments due to the current accretion in the gross external reserves, as well as the positive rally in the global crude oil market, despite the looming uncertainties from the Russian attack on Ukraine.
At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate opened the week at N416.75 per dollar and closed at N416 per dollar on Friday, appreciating by N0.75 from the previous week. Thus, the market activity level in the I&E window increased by 1.9 percent to $507 million from $497.8 million recorded in the previous week. Market participants maintained bids at between N410 and N444 per dollar.
At the FMDQ Securities Exchange (SE) FX futures contract market, the total value of open contracts declined 10.3 percent week on week to $4.4 billion. In the trading week, the MARCH 2022 instrument with contract price at N427.24 saw buying interest as its total value rose 9.3 percent week on week to $496.82 million from $454.7 million. Equally, the MARCH 2023 (Contract price: N448.59) instrument saw buying interest as its total value rose 16.2 percent week on week to $90.90 million from $78.21 million.
Starting this new week and going into March in the fixed income space, analysts are looking forward to seeing the current bullish momentum from the last NTB auctions to continue in the T-bills space while activity in the bonds market is expected to slow, as players cautiously trade selected maturities in the absence of clarity on interest rate direction.
Remarkably and effective March 1st, 2022, the DMO will change the FGN Bond Auction and Settlement days from Wednesday and Fridays to Mondays and Wednesdays.
Last week, the fixed income market traded on an active note with interest seen across all market segments. The bonds market remained buy-side driven the entire week with yields easing 23 basis points week on week on average. In the OMO and Nigerian treasury bills segments, demand spurred by post-T-bills auction sentiments caused the average yields to moderate 85 basis points week on week and 71.80 basis points week on week, respectively.
Money Market and Tbills
In the money market, the liquidity levels plunged at week-start compared to the prior week’s close and ended the week lower at -N96.1 billion despite inflows from coupon payments of about N66.8bn, as well as from OMO (N230.0bn) and Tbills (N115.3bn) maturities.
Accordingly, interbank rates moved in line with system liquidity dynamics with OPR and OVN rates closing the week higher at 14.8 percent and 15.8 percent, respectively.
On February 24, the CBN sold OMO instruments worth N258 billion, N142.7 billion higher than the amount on offer at the T-bills auction.
Compared to the previous auction, stop rates for the 91 and 364-day instruments fell 25 basis points and 85 basis points to 2.2 percent and 4.4 percent, respectively, while the 182day instrument remained at 3.3 percent.
It was observed that strong demand for the 91 and 364-day instruments was seen, as bid-to-cover ratio settled at 6.5x and 6.4x, respectively, while interest in the 182-day instrument was low at 0.6x.
The secondary market ended the week on a bullish note as average T-bills yield dipped 61 basis points week on week to four percent. Buy interest across the board was noticed as the yield on the 91, 182 and 364-day instruments fell 68 basis points, 100 basis points and 13 basis points, week on week, respectively.
Bonds Market Notwithstanding the drop in yields across T-Bills and the sticky rates across OMO tenors, the bond yields across tenors remain largely stable against postulations of moderation. At the close of the week, average bond yields closed 18 basis points lower at 11.1 percent from 11.3 percent in the previous week. Largely speaking, long term dated bonds recorded the most buying interest as average yields pared 27 basis points, followed by the medium-term dated bonds which posted an average yield decline of 13 basis points, while short term dated bonds closed 5 basis points lower.
The Eurobonds market was largely bearish in the week across the securities tracked with the average sovereign yield closing 87 basis points higher week on week to settle at 10.6 percent. The average yield on Zambian sovereign bonds closed 286 basis points higher, week on week, followed by Ghanaian (+163 basis points), Kenyan (+59 basis points), Nigerian (+40 basis points), Ivorian (+36 basis points) and South African (+31 basis points).
Zambia 2022 instruments experienced the most selloffs, with the average yield rising 749 basis points week on week, while South Africa 2019 received the most buying interest with a 208 basis points decline in yield.
Similarly, on the Corporate Eurobonds, activities were mostly bearish with the average yield rising by 33 basis points, week on week, with most selloffs witnessed on Zenith Bank 2022 (+146 basis points) as the instrument nears its maturity.