Money market




Accretion in reserves doubtful as oil prices wobble within benchmark


… Naira stability threatened


The prospect for accretion in reserves remains weak as oil prices struggle to keep up with the $60/bbl. benchmark of the 2019 Budget.
Analysts say, this might impact negatively on the stability of the naira.
Nonetheless, the naira was relatively stable amid the declining oil prices.
In a bid to ensure stability in the foreign exchange market, the Central Bank of Nigeria (CBN) injected $210.0 million into the interbank segment following sales concluded on Tuesday. It will be recalled that the sum of $321.1 million and CNY33.3m was injected into the Retail Secondary Market Intervention Sales (SMIS) segment on Friday of the previous week. Of the $210.0 million sold this week, $100.0 million was offered to the wholesale segment while the Small and Medium Enterprises (SMEs) and invisibles segments received $55.0 million each.


However, the external reserves further declined, down 0.7 per cent ($283.2m) to $42.9 billion from $43.2 billion the previous week.
The CBN spot rate opened the week at N306.90/$ but closed the week at N306.85/$, appreciating five kobo Week-on-Week (W-o-W) from N306.90/$ last week Friday. At the parallel market, the exchange rate traded flat all week to close at N360.00/$. At the Investors’ &Exporters’ (I&E) foreign exchange (FX ) Window, the NAFEX rate opened the week at N361.88/$ and closed at N361.95/$ on Friday, appreciating 13 kobo W-o-W from N362.08/$.


Activity level in the I&E Window fell 1.8 per cent to $1.07 billion from $1.08 billion recorded a fortnight ago.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira settled at $11.2 billion, up $106.6 million (1.0 per cent) from $11.1 billion in the prior week. The SEP 2020 instrument (contract price: N365.47) received the most buying interest in the week with additional subscription of $70.0 million which took total value to $84.2 million. On the other hand, the MAY 2020 instrument (contract price: N364.87) was the least subscribed, with an additional subscription of $5.0 million for a total value of $1.1 billion. In the coming week, we expect rates to trade within similar levels across the various FX segments as the CBN continues to sustain its weekly intervention.


The Open Buy Back (OBB) and Overnight (OVN) opened the week at 7.1 per cent and 8.3 per cent respectively, higher than the previous week’s close of 3.2 per cent and 3.9 per cent as system liquidity remained robust at N354.8 billion.
Despite Open Market Operations (OMO) maturities worth N347.7 billion, which boosted system liquidity to N694.1 billion on Thursday, the rates inched higher to 11.4 per cent and 12.3 per cent in that order. By the close of the week, OBB and OVN settled at 22.4 per cent and 24.7 per cent respectively.


In line with its schedule, the Central Bank of Nigeria (CBN) held a Primary Market Auction on Wednesday to rollover instruments worth N158.7 billion in maturing treasury bills. Unlike previous auctions, oversubscription was recorded across the board as the 91-day, 182-day and 364-day bills were oversubscribed by 2.2x, 1.7x and 2.1x respectively. Marginal rates remained the same as the previous auction for the shorter-dated instruments at 11.1 per cent while marginal rates for the medium and longer-dated instruments inched higher to 11.8 per cent and 13.3 per cent respectively (previous auction:11.6 per cent and 12.9 per cent).


The CBN also held an OMO auction last week, offering a total of N300 billion across three instruments to keep system liquidity in check given huge inflows from maturities. Only the medium-term instrument recorded undersubscription of 0.3x while the short-and long-term instruments were oversubscribed by 2.8x and 1.9x respectively. Sales exceeded offer as instruments worth N344.4bn were issued at stop rates similar to previous auction of 11.6 per cent, 11.8 per cent and 13.5 per cent for the 91-day, 182-day and 364-day instruments.


In the secondary treasury bills market, performance was bullish as average rate fell 21bps W-o-W to 12.5 per cent. Rates fell across tenors with the long-term instruments recording the steepest buying interest as rates pared 36bps to close at 13.3 per cent while rates on the short and medium-term instruments also fell by 12 Basis Points (bps) and 14bps respectively to 11.9 per cent and 12.1 per cent. Given large inflows worth N356.5 billion from OMO maturities expected next week, we believe the CBN will continue to keep rates in check through regular auctions.


Last week, the domestic bonds market sustained its bearish performance as average yield rose five bps W-o-W to settle at 14.2 per cent . The market recorded a bullish performance only on Monday (-5bps) and a bearish outing on Tuesday (+1bps), Wednesday (+3bps), Thursday (+3bps) and Friday (-3bps). While the short-term bonds enjoyed buying interest as yields fell 11bps, yields on the medium and long-term instruments rose by six bps and seven bps respectively.


In the SSA Eurobonds market, the narrative remains unchanged as the bullish trend persisted across all the instruments we track, except the Zambian 2027 instrument that posted a 2bps rise in yields. As observed in past weeks, the Zambian 2022 and 2024 instruments enjoyed the most buying interest with yields shedding 189bps and 179bps respectively. The Ghanaian and Nigerian 2049 instruments continue to trail with 88bps and 82bps drop in yields respectively.


In the corporate Eurobonds segment, the bullish momentum was sustained as all instruments gained W-o-W. The MAURITIUS BAYPORT MANAGEMENT 2022 instrument led the pack as yields pared 91bps and the NIGERIAN SEPLAT 2023 trailed with a 72bps decline in yields. Going forward, we expect investors to remain attracted to emerging market instruments in the quest for higher yields.

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