Funding Rates Spike to YTD High as CBN Drains System Liquidity into Negative

Culled—Proshare

February 11, 2019/Zedcrest Capital

***CBN, judiciary collaborate to close N48tr MSMEs financing gap***

KEY INDICATORS

Indicator Value Commentary
Inflation 11.44% As at January 16, 2019. A c.16bps increase from 11.28% recorded in November 2018
MPR 14.00% Left Unchanged for the 15th Consecutive Time at the Jan. 22, 2019 MPC Meeting
External Reserves $42.95bn As at February 8, 2019. A c.0.05% decrease from $42.97bn on February 7, 2019
Brent Crude $61.95pb As at February 11, 2019. A c.0.62% decrease from $61.57pb on February 8, 2019

Bonds

The Bond market opened the week on a quieter note, with yields trending lower by c.4bps due to continued buying interests witnessed on the mid to long end of the curve at the start of the session. We however witnessed slight profit taking on the 2028s which was sold back to 14.81% having reached a low of 14.71% in the early hours of trading.

Whilst we expect improved results from the Q4 2018 GDP figures to be released tomorrow and inflows from bond coupon payments of c.N47bn on Wednesday, we expect that market players would continue to trade cautiously in light of the uncertainties around the forthcoming elections.

Benchmark FGN Bonds
Description Bid (%) Offer (%) Day Change (%)
15.54 13-Feb-20 14.98 14.16 (0.06)
14.50 15-Jul-21 14.99 14.58 0.00
16.39 27-Jan-22 14.87 14.33 (0.02)
14.20 14-Mar-24 14.59 14.19 0.03
12.50 22-Jan-26 14.73 14.55 (0.01)
16.29 17-Mar-27 14.75 14.58 (0.02)
13.98 23-Feb-28 14.82 14.77 (0.11)
12.15 18-Jul-34 14.65 14.53 (0.04)
12.40 18-Mar-36 14.68 14.59 (0.06)
16.2499 18-Apr-37 14.51 14.39 (0.06)

Source: Zedcrest Dealing Desk 

Treasury Bills

The T-bills market turned slightly bearish as market players reacted to the liquidity squeeze from the OMO and wholesale FX sale by the CBN today. Yields consequently trended higher by c.5bps on the day, following slight selloff on the short end of the curve. Despite the system illiquidity, client demand remained strong for the 360-day OMO bill offered by the CBN, which recorded a total sale of c.N35bn of the 10bn offered on the Tenor.

We expect the T-bill rates to remain elevated due to the liquidity squeeze in the money market, whilst a further OMO auction by the CBN will likely force rates higher. 

Treasury Bills
Description Bid (%) Offer (%) Day Change (%)
14-Feb-19 12.50 10.00 (1.00)
14-Mar-19 12.50 10.00 0.50
4-Apr-19 11.25 11.10 0.10
2-May-19 11.50 10.00 (1.45)
13-Jun-19 12.95 11.75 (0.80)
18-Jul-19 12.95 12.75 (0.35)
1-Aug-19 14.50 14.30 (0.25)
12-Sep-19 14.80 14.50 (0.10)
3-Oct-19 14.95 14.80 0.00
14-Nov-19 14.90 14.80 (0.10)
5-Dec-19 15.00 14.75 0.00
2-Jan-20 15.00 14.90 0.00

Source: Zedcrest Dealing Desk 

Money Market

Rates in the money market spiked significantly as system liquidity which opened the session in negative territory of c.N127bn negative was further aggravated by the OMO (c.N37bn) and Wholesale FX sales (c.$210m) by the CBN. The OBB and OVN rates consequently ended the session at an YTD high of 43.33% and 47.50% respectively, as banks were not able to access the CBN’s SLF to fund their deficits.

We expect rates to trend lower tomorrow, as banks would be able to access the CBN’s SLF window to fund their obligations at cheaper rates.

Money Market Rates
  Current (%) Previous (%)
Open Buy Back (OBB) 43.33 18.67
Overnight (O/N) 47.50 19.42

Source: FMDQ, Zedcrest Research 

FX Market

At the Interbank, the Naira/USD rate remained unchanged at N306.70/$ (spot) and N357.10/$ (SMIS). The NAFEX rate in the I&E window depreciated further by c.0.06% to N361.95/$, whilst the cash and transfer rates at the parallel market remained unchanged at N359.00/$ and N365.00/$ respectively.

FX Market
  Current (N/$) Previous ( N/$)
CBN Spot 306.70 306.70
CBN SMIS 357.10 357.10
I&E FX Window 361.95 361.73
Cash Market 359.00 359.00
Transfer Market 365.00 365.00

Source: CBN, FMDQ, REXEL BDC 

Eurobonds

The NGERIA Sovereigns remained slightly bearish in today’s session, with yields rising further by c.6bps as a slightly stronger US dollar, lower oil price, and renewed trade uncertainties continue to place a dent on the recent EM resurgence.

In the NGERIA Corps, yields were relatively flat across board, with investors maintaining a slightly bearish bias on the DIAMBK 19s and UBANL 22s.

Proshare Nigeria Pvt. Ltd.

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