DMO Raises Rates At Monthly Auction Once Again, As Senate Approves $2.7Bn External Borrowing Plan

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Yields in the FGN Bond market increased by c.9bps, as market players reacted to the weak demand and relative oversupply of bonds at the previous day’s primary auction.

The most impact was felt on the short-end, with tight system liquidity pressures squeezing yields higher on the 2023s and 2024s while yields on the mid-dated papers (2026s – 2029s) weakened following the supply of the 2027s at the auction.

A similar scenario played out at the long end of the curve, with the 2034s and 2036s bonds weakening off the fresh supply of the 2035s while the 2049s and 2050s reacted negatively to the flood of 2045s in the streets.

We expect yields to remain relatively stable closing out the week, as market players anticipate some demand from some of the coupon payments (c.N111Bn) expected at the beginning of next week.

Treasury Bills

The T-bills market held its breath for most of today, as market participants fixed their gaze on the CBN’s OMO auction. Offers for the long-dated bills (Dec. -Jan. maturities) improved to 10.00% levels as participants looked to offload positions to fund liquidity needs. The OMO bills were also offered for most of the session, with investors again shrugging off bills showing a sustained expectation for the continued rise in rates in the interim.

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At the auction, the CBN sold a paltry volume of N12.84Bn across the three maturities on offer as bids at the auction were low as local banks continued to battle with tight system liquidity funding pressures. The Apex bank was able to drop rates on the 96- and 187 days, closing lower at 6.90% and 8.48% respectively. The stop rate on the 355-day tenor remained unchanged at 10.10%,

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We expect the bills market to close the week on a somber note, as continuous tight system liquidity holds local banks back.

Money Markets

Interest rates climbed higher for another consecutive session, as the CBN maintains its tight grip on interbank system liquidity levels. The market opened 8.71% lower in negative territory (c.N134.36Bn opening), as local banks continued to rely on the Apex bank as a funding source. Consequently, Open Buy Back (OBB) and Overnight (O/N) rates rose to close at 14.67% and 15.17%, respectively.

We expect the markets to close the week higher with Bond auction debits of c.N252Bn as well as possible CRR debits canceling out expected FAAC inflows of c.N292Bn, continuing the funding pressures on local banks.

FX Market

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At the FX space, we saw movement at the cash and transfer market which appreciated by an average N0.51k as demand took a breather amidst ample supply consequently closing at N482.50/$ and N496.98/$ respectively. The I&E FX market remained stable, with the rates unchanged at N410.00/$ despite a 169% increase in trading volumes as inflows from the CBN intervention and export proceeds improved in the market.

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Eurobonds

At the NIGERIA Sovereigns space, we saw slight retracement in bids as oil prices stabilized below $65/barrel. Although the market had a pretty quiet session, we saw yields compressed by an average of c.8bps across the curve.

The NIGERIA Corporates had a more active session, while positive yield movement was seen on the shorter-dated papers for a second consecutive session. The Access 2021s and Zenith 2022s were the biggest gainers, strengthening by c.10bps and c.14bps respectively

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