Naira Weakens As The CBN Opens Another Investigation Into Corporates’ FX Dealings

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KEY INDICATORS

Indicator Value Commentary
Inflation 13.22% As at August 2020. A 40bps increase from 12.82% recorded in July 2020
MPR 12.50% MPC Meeting scheduled for September 21 & 22nd, 2020
External Reserves $35.81bp As at Sep. 17, 2020. A c.0.02% increase from $35.81bp on Sep. 16, 2020
Brent Crude $41.42pb As at Sep. 21, 2020. A c.4.01% decrease from $40.90pb on Sep. 18, 2020

 

FGN Bonds

It was a quiet start to the week in the FGN Bonds market as market participants pin their focus on the bi-monthly MPC meeting as well as the monthly FGN Bond auction slated for the week. Despite the generally quiet session, we still noted some pockets of the demand at the short- (2023s), mid- (2025s and 2027s), and long-end (2034s, 2049s, and 2050s) at close to offer levels. Consequently, yields compressed by c.5bps on the average across the benchmark bond curve.

We expect the market to remain calm opening tomorrow as well ahead of the MPC Communique. Clients are still expected to cherry-pick across the curve as ahead of the continued inflow of FGN Bond coupon payments (c.N24BN expected this week).

Benchmark FGN Bonds
Description Bid (%) Offer (%) Day Change (%)
16.39 27-Jan-22 5.00 3.10 0.00
12.75 27-Apr-23 5.00 3.82 (0.40)
14.20 14-Mar-24 5.00 3.75 (0.25)
13.53 23-Mar-25 5.55 4.60 0.00
12.50 22-Jan-26 6.60 6.30 0.00
16.29 17-Mar-27 7.70 7.40 0.00
13.98 23-Feb-28 7.90 7.70 0.05
14.55 26-Apr-29 8.18 7.90 0.00
12.15 18-Jul-34 9.80 9.55 0.00
12.40 18-Mar-36 9.90 9.60 0.00
16.2499 18-Apr-37 9.90 9.75 0.00
14.80 26-Apr-49 9.98 9.90 0.00

 

Treasury Bills
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The hunt for yield by local banks continued today, as rates continued to drop across most traded securities especially at the long=end of the OMO curve. Long-dated papers (August maturities) traded within the 2.70—2.80 range as supply at that end remains thin. Consequently, rates dropped by c.19bps on the benchmark OMO curve.

We expect the market to remain bullish supported by current system liquidity levels. With OMO maturities of c.N300BN expected later this week, rates could crash as low as mid-2% levels as the bullish train continues.

Benchmark OMO Bills
Description Bid (%) Offer (%) Day Change (%)
NGOMO 10/1/2020 3.00 0.01 0.00
NGOMO 11/03/2020 3.00 0.01 0.00
NGOMO 12/01/2020 3.00 0.01 0.00
NGOMO 01/05/2021 4.00 0.01 (1.00)
NGOMO 02/02/2021 4.00 0.01 (1.00)
NGOMO 03/02/21 5.00 0.01 0.00
NGOMO 05/11/21 5.00 0.01 0.00
NGOMO 06/08/21 5.00 0.01 0.00
NGOMO 08/10/21 5.00 0.01 0.00
Benchmark NTBills
Description Bid (%) Offer (%) Day Change (%)
NIGTB 10/1/2020 2.00 0.01 0.00
NIGTB 11/12/2020 2.00 0.01 0.00
NIGTB 12/31/2020 2.00 0.01 0.00
NIGTB 01/14/2021 3.00 0.01 (0.50)
NIGTB 02/11/2021 3.00 0.01 (0.50)
NIGTB 04/29/2021 4.00 0.01 0.50
NIGTB 05/13/21 4.00 0.01 0.00
NIGTB 06/10/21 4.00 0.01 0.00
NIGTB 07/01/21 4.00 0.01 0.00
NIGTB 08/26/21 4.00 0.01 0.00

 

Money Markets

Interbank rates remained low, supported by excess system liquidity levels. The markets opened c.N533BN, 146% higher than the previous session, pushing rates down to close at 1.00% and 2.00% for OBB and OVN rates respectively.

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We expect rates to remain low this week as FGN Bond coupons of c.N24BN and OMO maturities of N300bn drop later in the week.

Read Also:  Naira Weakened against the USD at the BDC, Parallel Markets
Money Market Rates
  Current (%) Previous (%)
Open Buy Back (OBB) 1.00 2.00
Overnight (O/N) 2.00 3.00

 

FX Market

It was an active day for the Apex regulator as another list of 71 additional companies under investigation by the CBN came out today. This development follows 2 of such investigations launched by the CBN in August earlier this year.

Despite this development, the lack of supply again hit the FX markets today as rates weakened again in the parallel market. Cash and transfer rates lost an average of N1.50k to close higher at N465.00/$ and N478.00/$ respectively.

FX Market
Current (N/$) Previous ( N/$)
CBN Spot 379.00 379.00
CBN SMIS 380.69 380.69
I&E FX Window 386.00 386.00
Cash Market 465.00 464.00
Transfer Market 478.00 476.00
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Eurobonds

It was a blood-red session across the Sub-Saharan African Eurobond space, with sell-offs seen on most major names including the NIGERIA Sovereigns. This weakness comes as investors worry about COVID-19 surging in Europe again and dropping oil prices.  Yields expanded by c.30bps across the sovereign curve in a generally weak session.

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The NIGERIA Corporate papers have so far been spared of the onslaught, save for the FIDBAN 2022s which lost c.26bps on its closing yield.

We expect the sell-off to expand to other names, as investors look to protect their portfolios in the light of these weak sentiments.

 

 

Naira Weakens As The CBN Opens Another Investigation Into Corporates’ FX Dealings - Brand Spur

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