Money Market
The average money market rate fell significantly by 12.46% to settle at 1.94% from 14.40% in the previous week. As expected, Open Buy Back (OBB) closed at 1.63% compared to 13.90% in the previous week while the Overnight rate (OVN) closed at 2.25% compared to 14.90% the previous week.
The buoyant system liquidity may be attributable to OMO maturities inflow (N321.48 billion) which outweighed the outflow from OMO auction worth N100.00 billion.
In line with the recent market developments, the CBN has reviewed the minimum interest payable on local currency savings deposits to 1.25% per annum (previously 3.9%). Aimed at diverting funding from risk-free instruments to the real sector.
The new policy could mean a lower cost of funds for the bank, low depositors’ saving appetite, an increase in inflation. The reduced interest rate may also cause further decline to the already low yield environment in the country as returns on money market instruments and bonds are currently low.
We expect buoyancy in the system liquidity as inflows from OMO maturities are expected to hit the system this week.
Forex: USD/NGN
Following the resumption of forex sales to BDCs in the country, Naira appreciated in the parallel market as the Naira-Dollar rate fell by 7.74%, from N478/$ to N441/$ week-on-week. At the Investors and Exporters (I&E) forex window, the market closed the week with an indicative rate of N386.13, which is an appreciation of N0.46k when compared to a close of N386.59k the previous week. It is assumed that the forex sales by the CBN to BDC operators will continue to scare hoarders and speculators for the time being, increase liquidity in the retail segment of the FX market and reduce the pressure on the local currency.
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.
Bond: FGN
The secondary sovereign Bond market closed bearish last week as the average yield rose by 9bps to close at 8.06% compared to 7.97% in the previous week. The highest yield decline was witnessed in the MAR-2025 bond which declined by 32bps to close at 5.91% compared to 6.23% the previous week while the highest yield increase was seen in the JAN-2022 bond which rose by 27bps to close at 4.95%. Increased activities were observed in short term tenor bonds as it seems that liquidity-driven demand dominated trading activities in the bond market.
The sovereign Eurobond market closed on a bullish note as the average yield fell by 30bps to close at 6.47% compared to 6.78% the previous week. In the same vein, the corporate Eurobond market closed bullish as the average yield fell by 9bps to close at 6.95% compared to 7.03% witnessed the previous week.
We expect increased activities in the Bond market as Investors hunt for investment outlets due to excess liquidity.
Treasury Bills
The Treasury bills market closed bearish last week as the average yield contracted by 15bps to close at 1.92% compared to 2.02% the previous week. In the same vein, OMO bills fell by 30bps to close at 2.81% compared to 3.12% the previous week.
At the auction, the CBN offered bills worth N100.00 billion, with allotments of N10.00 billion for the 82 days, N10.00 billion for the 180 days, and N80.00 billion for the 355 days. The stop rate closed at 4.86%, 7.68%, and 8.94% respectively.
We expect increased demand in the T-bills market as investors take a position in the market.
Commodities
Oil prices began the month with a weak start as Brent Oil declined by 6.88% to close at $42.66 per barrel while West Texas Intermediate (WTI) dipped by 7.45% to close at $39.77. According to Bloomberg, the downward movement may be attributable to coronavirus flare-ups in various parts of the world which might be a threat to a sustained rebound in oil consumption at a time when OPEC and its allies are returning oil to the market and easing historic output cuts.