CBN Resumes Whole FX Intervention To Tackle FX Supply Problems

Culled—Proshare

May19, 2020

By Zedcrest Capital 

FGN Bonds

It was a topsy-turvy session in the market for FGN Bonds, as spreads widened across the head and belly of the curve while maturities at the tail-end saw tighter spreads from improved bids. We noted strong local demand for the 2023s and 2024s papers, with trades being executed on available offers. This demand also extended to the long-end, with the 2049s seeing some demand from offshore players in the market. Yields closed higher by c.13bps on the average, as the market looks towards the monthly bond auction.

The long-awaited FGN Bond auction is here and the markets will look to the Debt Management Office of Nigeria for a clearer scope for the direction of bond yields. Expectations for a much weaker auction, following the increase borrowing pressure on the DMO, is somewhat abated with the level liquidity available to investors which should provide strong support.

FGN Bond Auction Expectation – May 20, 2020  
Tenor Last Stop Rate (%) Offer (N’bn) Expectation  
April 2023 9.00 20.00 8.90 – 9.20  
April 2035 12.00 20.00 11.90 – 12.10  
April 2050 12.50 20.00 12.45 – 12.60  
 

                        Benchmark FGN Bonds

Description Bid (%) Offer (%) Day Change (%)  
14.50 15-Jul-21 8.87 4.86 0.87  
16.39 27-Jan-22 9.16 5.31 (0.02)  
12.75 27-Apr-23 9.93 8.58 0.18  
14.20 14-Mar-24 9.71 8.42 0.29  
13.53 23-Mar-25 9.58 8.64 0.48  
12.50 22-Jan-26 11.04 10.15 0.46  
16.29 17-Mar-27 11.16 10.62 0.00  
13.98 23-Feb-28 11.22 10.85 0.00  
14.55 26-Apr-29 11.29 11.02 (0.17)  
12.15 18-Jul-34 11.71 11.29 0.01  
12.40 18-Mar-36 11.75 11.40 (0.01)  
16.2499 18-Apr-37 11.72 11.45 (0.11)  
14.80 26-Apr-49 12.59 12.44 (0.12)  

Treasury Bills

Liquidity in the Bills market remains poor as supply from the CBN for OMO bills remains dry, leaving local banks and foreign investors to battle for where to invest their excess liquidity. Offers completely vanished on from the benchmark OMO curve as dealers opted to protect themselves from being lifted amid the scarcity. Maturities at the long-end (February and March) traded lower today below the 6.50% range.

Offers on NTBs also remained scarce, save for the 13May2021 which remained offered at 3.00% levels but with little investor interests seen there. Spreads widened across the benchmark OMO and NTB curves, reflecting the lack of liquidity.

We expect the market to remain weak pending any new of supply from the CBN via an OMO auction.

                          Benchmark OMO Bills
Description Bid (%) Offer (%) Day Change (%)
NGOM 6/4/2020 5.00 2.00 0.00
NGOM 7/2/2020 8.00 2.00 3.00
NGOM 8/13/2020 8.00 2.00 0.00
NGOM 9/3/2020 8.00 3.00 0.00
NGOM 10/1/2020 8.00 3.00 0.00
NGOM 11/03/2020 8.00 3.00 0.00
NGOM 12/01/2020 9.00 4.00 0.00
NGOM 01/05/2021 9.75 4.00 0.00
NGOM 02/02/2021 9.75 4.00 0.00
NGOM 03/02/2021 9.75 4.00 0.00
 

 

                                  Benchmark NTBills

Description Bid (%) Offer (%) Day Change (%)
NIGTB 2-Jul-20 4.00 0.50 0.00
NIGTB 1-Oct-20 4.00 0.50 (1.00)
NIGTB 12-Nov-20 4.00 0.50 (1.00)
NIGTB 14-Jan-21 5.00 0.20 0.00
NIGTB 11-Feb-21 5.00 0.20 1.00

Money Markets

Money Market rates stayed lower again today with continued support from buoyant system liquidity levels following recent FAAC inflows. OBB and OVN rates closed at 1.90% and 2.30% respectively, with market liquidity estimated to close at c.N517.76Bn with no funding pressure on local banks.

We expect money market rates to remain low for most of the week as funding pressures ease and the CBN keeps its OMO auction window shut.

                            Money Market Rates
Current (%) Previous (%)
Open Buy Back (OBB) 1.90 1.83
Overnight (O/N) 2.30 2.33

FX Market

Unmet demand for FX continues to choke the markets, driving volumes to all-time lows. The I&E FX window saw only $8.67million change hands, the lowest volume traded since its inception in April 2017. The Apex bank resumed its Wholesale FX Market interventions, selling between $90-100million on a spot basis, deviating from its usual forward basis sale.

Demand continues to pile at the parallel market as well, marking it difficult for traders to make a price for the greenback. The closing rates remained unchanged across all the market sentiments.

                                 FX Market
Current (N/$) Previous ( N/$)
CBN Spot 361.00 361.00
CBN SMIS 380.69 380.69
I&E FX Window 386.33 386.33
Cash Market 445.00 445.00
Transfer Market 470.00 470.00

Eurobonds

And the bulls continued to ride on for the NGERIA Sovereigns and most sub-Sharan sovereign papers in today’s trade session, as oil prices remain in sustain the gains from the previous week. Demand was evident across the sovereign curve, with the NGERIA 2031s and 2049s papers the most active as they both offered the yield yields in the market. Consequently, yields compressed by c.31bps on the average across the benchmark curve.

The NGERIA Corps tickers also continue to enjoy love, especially from local investors on the hunt for double digit yields. The UBA 2022s, FIDBAN 2022s and ETINL 2024s all closed the session stronger following large demand. We saw some pull back on the SEPLLN 2023 paper as the withholding tax impact on the 2019 final dividend (caused by the amendment of the finance laws in Nigeria – Finance Act, 2020) weighed on the paper.

Proshare Nigeria Pvt. Ltd.

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