Anchoria Fixed Income Monitor: Bullish Sentiment in the Bond Market

Money Market

The average money market rate rose significantly by 13.56% to settle at 15.50% from 1.94% in the previous week. The Open Buy Back (OBB) rate increased significantly to close at 14.50% compared to 1.63% in the previous week while Overnight rate (OVN) closed at 16.50% compared to 2.25% the previous week. The constraint in the system liquidity is attributable to outflows from OMO auctions worth N70.00 billion and FX auction debits which outweighed OMO maturities that flowed into the system.

We expect buoyancy in the system liquidity as inflows from OMO maturities (N350.00 billion) and FGN Coupon Payment (N142.09 billion) are expected to hit the system during the week.

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Forex: USD/NGN

Nigeria’s exchange rate at the I&E window depreciated to N386.00 at the close of the week while the parallel market closed at N440/$1. Despite the resumption of weekly forex sales to BDCs across the country, the dollar allocation failed to strengthen the value of the naira, which continued to fluctuate due to the forces of demand and supply. The dollar traded at an average rate of N450 on Friday as against N455 on Wednesday in the parallel market.

The fall in the value of Naira may be attributed to the increased demand by end-users who are either traveling or buying to meet import obligations. Other reasons may be due to speculative and hoarding activities of traders.

We expect the pressure on Naira to drop in the short term as the Central Bank continues to carry out measures aimed to stabilize and unify the exchange rate.

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Bond: FGN

The secondary sovereign Bond market closed bullish last week as the average yield fell by 39bps to close at 7.67% compared to 8.06% in the previous week. The highest yield decline was witnessed in the MAR-2024 bond which declined by 185bps to close at 4.02% compared to 5.87% the previous week while the highest yield increase was seen in the JUL-2030 bond which rose by 10bps to close at 9.00%. The bullish activities witnessed during the week may be attributable to investors’ quest to reinvest their bond maturities at competitive yields when compared with the prevailing money market rate.

The sovereign Eurobond market closed on a bearish note as the average yield rose by 22bps to close at 6.69% compared to 6.47% the previous week. Conversely, the corporate Eurobond market closed bullish as the average yield fell by 2bps to close at 6.93% compared to 6.95% witnessed the previous week.

We expect increased activities in the Bond market as Investors hunt for investment outlets due to excess liquidity.

Proshare Nigeria Pvt. Ltd.

Treasury Bills

The Treasury bills market closed bearish last week as the average yield contracted by 24bps to close at 1.72% compared to 1.95% the previous week. In the same vein, OMO bills fell by 43bps to close at 2.41% compared to 2.64% the previous week.

At the T-bills auction, the CBN offered bills worth N128.06 billion, with allotments of N4.41billion for the 91 days, N14.00 billion for the 182 day, and N109.65 billion for the 364 day. The stop rate closed at 1.10%, 1.55%, and 3.05% respectively.

We expect increased demand in the T-bills market as investors take a position in the market.

Proshare Nigeria Pvt. Ltd.

Commodities

Crude oil prices slowed down this week as Brent Oil dropped 6.63% to close at $39.83 per barrel and West Texas Intermediate (WTI) dropped by 6.14% to close at $37.33. Both oil benchmarks dropped below the $40 benchmark

The decline may be attributable to the second wave of the virus seen in the U.S, Europe, and India, despite the restrictions observed in these geopolitical zones. The global coronavirus cases are at 28.9 million as of September 12, 2020.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

 

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