Local Demand Crawls Back In The Fixed Income Market As CBN Continues To ‘Test’ FX Demand

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Activity in the FGN Bonds market picked up some steam in today’s session, as bids improved on select bonds at the short- and long-ends of the curve. The most actively traded papers on the day were the 2049s and 2050s which continued the rally from yesterday’s session, as yields dropped by an average of 15bps D/D. At the short-end, the 2023s paper remains the most sought after, trading around mid-5% levels.

Consequently, yields compressed by c.5bps on the average across the benchmark curve.

We maintain our expectation for a slightly weak market in the interim, as the bigger players in the market remain on the sidelines. Cherry-picking is expected to continue at the long-end of the curve, especially for yields offered above 10.00%. 

Treasury Bills

Demand for OMO bills by local banks remained persistent in today’s trade session in spite of the OMO auction announced by the CBN. Bids for long-tenured papers remained firm above 3.00%, as local banks anticipated improved supply from offshore players which have access to the primary market for OMO bills. Rates compressed by c.61bps on the average across the benchmark OMO curve.

At the OMO auction, the CBN sold a total of N100.00Bn across the three maturities on offer while keeping rates stable. Participation remains relatively low at the auctions geared towards keeping offshore investors interested in the Nigerian financial markets in a bit to keep exchange rate volatility to a minimum.

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The supply from the OMO auction today is expected to heat-up market activity in tomorrow’s session, as local banks scramble to soak up supply from the offshore players in a bid to invest their maturing OMO positions. 

Money Markets

Interbank rates slumped further as market liquidity improved slightly by 2.38%, opening the day at c.N261.83bn positive and further boosted from a net inflow from OMO maturities of N221bn. Rates dipped by c.213bps on the average, as OBB and OVN rates closed the day at 2.50% and 3.25% respectively.

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We expect rates to remain stable tomorrow in the lower single-digit range, with the outside chance of a net negative CRR debit the only threat to current market rates. 

FX Market

The CBN’s strategy of a small-but-steady supply of the dollars to local banks in daily tranches of $50mio seems to be having a little-to-no effect in stemming the outstanding demand. Despite improved volumes in the I&E FX window ($98.18mio changed hands today, up 140% D/D), the closing rate weakened by N0.25k to close at N386.25/$.

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The Naira’s rally at the parallel market rates hit a stop today, as supply from speculative holders of the greenback seems to have wrapped up. The cash and transfer rates lost N3.00 and N5.00 respectively at the close of the trading session.

As the resumption of supply from the Apex bank draws nearer, we expect a muted session to close the week. The volatility in the exchange rates is far from over however, as the jury is still out on the impact the reduced weekly volumes to BDCs will have in the coming week. 

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Eurobonds

It was a quiet session for the NIGERIA Sovereigns today, as sentiment was mixed across the sovereign curve. Demand persisted on the 2025s and 2027s papers, while offers at the long-end increased. Sub-Saharan African sovereign papers closed the session slighter stronger, led again ANGOLA and KENYA papers.

The NIGERIA Corporates had another quiet session, with slight gains seen on the ACCESS 2021s and FIDBAN 2022s.

ZEDCREST FIXED INCOME DAILY
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Local Demand Crawls Back In The Fixed Income Market As CBN Continues To ‘Test’ FX Demand - Brand SpurLocal Demand Crawls Back In The Fixed Income Market As CBN Continues To ‘Test’ FX Demand - Brand Spur

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Local Demand Crawls Back In The Fixed Income Market As CBN Continues To ‘Test’ FX Demand - Brand SpurLocal Demand Crawls Back In The Fixed Income Market As CBN Continues To ‘Test’ FX Demand - Brand Spur

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