CBN Maintains Iron Grip On Local Banks, As Interbank Liquidity Drops In 2 Years

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The FGN bond market continued to trade on a bearish note, as yields rose across the benchmark bond curve for another consecutive trading session. We noted sellers mostly at the short to mid-dated papers, as tight system liquidity continues to squeeze banks out of holding positions.

The 2023s paper was offered for most of the session at mid-10% levels, with no buying interests to match.

The 2028s and 2029s papers were offered better to entice some demand, with those bonds trading around 12.50% for most of the session. Short-covering activity continued to provide support at the long-end of the curve, with the 2045s and 2049s trading just below the 14.00% mark. Yields expanded by c.13bps on the average across the benchmark curve.

We expect market demand for bonds to stay muted in the interim as short-term rates remain elevated as well as expected slight selling pressure as the month draws to a close.

Treasury Bills

The treasury bills space traded with continued selling pressure for another consecutive session as local players looked to offload positions to cover their funding positions amidst sustained tight system liquidity levels. Supply remained focused on short-dated papers, as the CBN Special Bill (31-May-2021 maturity) was offered at 6.00% as local banks looked to raise cash rather than continue overnight funding at double-digit rates.

We expect the bills market to continue the bearish trend ahead of the bi-monthly primary auction for T-bills tomorrow as investors expect higher stop rates.

Money Markets

Interest rates climbed higher for another consecutive session, despite OMO maturities of N40.00Bn, as local banks continued to camp at the CBN Lending window to fund their positions. System liquidity opened at c.N313Bn negative, the tightest levels seen since way back in September 2019. Funding from the CBN SLF & Repo windows by local banks increased by c.40.81% to N480Bn. Consequently, Open Buy Back (OBB) and Overnight (O/N) rates rose to close at 14.25% and 14.75%, respectively.

We expect the markets to remain tights and rates elevated, as the DMO is expected to oversell at tomorrow’s auction causing further strain on banks’ funding.

FX Market

The Naira had a relatively quiet trading session at both the official and parallel markets. At the IEFX space, we saw a slight uptick in traded volumes which increased by 2.00% D/D (c.$48.42mio traded). The Naira appreciated by N1.67k to close at N411.67/$, as bids ranged between N401.10 and N436.55 to the dollar.

The cash and transfer rates remained unchanged D/D.

Eurobonds

It was a bearish session in the NIGERIA Sovereigns, with some profit-taking action seen, especially on the mid-and long-tenor papers causing yields to expand slightly by c.2bps on the average across the sovereign curve. At the SSA space, the GHANA remained weak for the second consecutive day as sellers continue to improve offers in another profit-taking driven session across the sovereign curve.

The NIGERIA Corporates papers traded mixed, as we noted continued selloffs on the short-dated Access 2021s paper as investors cycled into the FIDBAN 2022s for a 120bps yield pick-up