Rates trend lower as market opens liquid
THE reign of high rates in the money market for three consecutive weeks was tamed last week, as liquidity surfeit hallmarked activities from the first trading day.
The week had started with liquidity balance of N269.5 billion, as the closure of the Retail Dutch Auction System/Wholesale Dutch Auction System may have gradually reduced pressure for foreign exchange (forex) provisioning.
Specifically, the high liquidity balance was attributed to non-demand pressure by Deposit Money Banks (DMBs) in their efforts to make provisions for forex’s bi-weekly auctions, usually Mondays and Wednesdays.
Besides, the distribution of revenue to the three tiers of government and repayment of maturing Open Market Operation (OMO), which hit the system in previous week, added to the liquidity in the system.
Consequently, rates traded at lower levels on average, compared to the previous week’s record, despite the mopping up exercise by the Central Bank of Nigeria (CBN) through the OMO, which claimed N55.3 billion.
The Overnight and Open Buy Back (OBB) rates closed at 11.5per cent and 11.2per cent respectively, a marginal increase from last Friday’s close.
However, the Overnight rate, on Tuesday, gained 42 basis points (bps) to close at 11.4per cent while OBB rates fell by 38bps to close at 10.8per cent.
Also, liquidity remained at its high levels for the rest of the week, with Overnight and OBB rates settling at 11.3per cent and 10.9per cent on Wednesday; and 11per cent and 11.1per cent on Thursday, while at the close of the week, the rates settled at 12per cent for the Overnight, and 11.7per cent for OBB.
The sovereign bond market space recorded marginal decline in yields during the week as investors took advantage of the current attractive yield environment and seemingly stabilizing domestic macroeconomic headwinds, given stable oil price at $61.88 per barrel.
Average yield in the week dropped marginally by 0.1per cent to settle at 15.9per cent relative to the previous level of 16per cent.
According to Afrinvest Securities Limited’s weekly report, the noticeable stability in oil prices plus the recovering fiscal fundamentals, as well as the relative stability in foreign exchange seem to be attracting discerning investors into the market.
Additionally, the recent closure of RDAS window by the CBN, which resulted to 20.1per cent further devaluation of the naira- coupled with the high yield environment, made the bonds attractive.
The Nigerian Euro Bonds, particularly Corporate Bonds were positive, as the average Eurobond yield settled at 6.01per cent, while average Corporate Bond yield was pegged at 15.5per cent with a high and low of 38.9per cent and 6.2per cent respectively.
Based on current reality, the major downside risk to Nigerian bond market remains the concerns around the general elections, which we note will continue to play a pivotal role in the direction of yields.
The Naira appreciated against the dollar this week while volatility pressure on the local unit also moderated both at the official window, order based interbank market and the naira spot market.
The currency’s strength came with increased dollar sales by oil companies, which lifted optimism in the domestic capital market, attracted capital flow and sustained intervention by CBN.
The naira, which closed at N202.23/$ last Friday, strengthened to N199.60/$ by the middle of the week at the Interbank market after autonomous sales moderated the demand supply gap for the Greenback.
Analysts at the securities company explained that with the closure of the bi-weekly RDAS market and the adoption of a special intervention window where the CBN intervenes in the Interbank market to fulfil orders based on customer demand, which cannot be resold, the volatility on the Naira has moderated.
Also, banks have been required to provide documentary evidence of orders made by customers before placing trade orders in the interbank market, effectively increasing the transparency in the forex market and reducing speculative actions of market players.
“We expect the naira to remain stable next week on the back of the anticipated capital inflow geared on the upbeat mood in the capital market and the Debt Management Office’s bond auction scheduled for next Wednesday.
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