Money Market

The average money market rate rose by 3.15% to settle at 4.44% from 1.29% in the previous week. The Open Buy Back (OBB) rate closed at 4.00% compared to 1.00% the previous week while the Overnight rate (OVN) closed at 4.88% compared to 1.58% in the previous week. This may be attributed to outflows from CRR debits (N462.7 billion), FX retail, and OMO auctions which outweighed inflows from OMO maturities worth N567.69 billion.

We expect buoyancy in the system liquidity as inflows from OMO maturities (N370.00 billion) is expected to hit the system during the week.

Forex: USD/NGN

Nigeria’s currency strengthened by 1.72% week-on-week as the Naira sold for N457/$ compared to N465/$ the previous week. Naira appreciation may be attributed to improved liquidity as the Central Bank is solely committed to its weekly forex sales. At the Investors & Exporters (I&E) window, Naira closed at N385.83 per dollar compared to N385.80 per dollar the previous week.

In the recently published Monetary Credit, Foreign Trade and Exchange Guidelines for the Fiscal Year 2020-2021, the CBN estimates that the FX reserves would decline to between $29.9 billion and $34.3 billion by the end of December 2020. In 2020, the FX reserves have been negatively impacted due to lower oil receipts and intensifying capital outflows among Foreign Portfolio Investors (FPIs).

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 bullish last week as the average yield fell by 58bps to close at 6.25% compared to 6.83% in the previous week. Yields contracted across all instruments except the JAN-2022 bond. The highest yield decline was seen in the FEB-2028 which contracted by 149bps to close at 5.76% compared to 7.25% the previous week.

The sovereign Eurobond market closed bullish as the yields fell by 84bps to close at 6.66% compared to 7.50% the previous week. In the same vein, the corporate Eurobond market closed bullish as the yields fell by 15bps to close at 6.74% compared to 6.89% the previous week.

We expect to see sustained demand in the Bond market as investors continue to re-invest their maturities while retaining a cautionary approach in the market.

Treasury Bills

The Treasury bills market closed bearish last week as the average yield fell by 48bps to close at 1.44% compared to 1.89% the previous week. In the same vein, the average yield on OMO bills fell by 58bps to close at 6.25% compared to 6.83% the previous week.

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

Commodities

Crude oil prices closed on a positive note as Brent oil closed at $42.85 per barrel compared to $39.27 per barrel. In the same vein, WTI closed at $40.60 per barrel compared to $37.05 the previous week.

According to Reuters, prices were supported by strike action in Norway that shut down six offshore oil and gas fields. More oil and gas field shutdowns are possible in Norway as the strike continues to escalate overpay.