By Obinna Chima
Activities in the money market this week would be partly shaped by maturing treasury bills worth N96.6 billion that is expected to hit the financial market this Wednesday.
Trading activities in the treasury bills market opened last week on a bearish note given lower system liquidity. In fact, average treasury bills rates rose from 16.1 per cent on Monday to 16.3 per cent on last Tuesday and sustained uptrend during the week, settling at 17 per cent last Thursday as investors showed preference for OMO auction. In all, average rates declined 0.7 per cent week-on-week to settle at 16.7 per cent.
However, analysts anticipate that money market rates would remain within the double digit levels barring any unexpected inflows from the system.
The federal government has declared today and tomorrow as public holidays to mark the Eid-el-Kabir.
Meanwhile, performance in the money market last week was fairly bullish. Rates in the money market remained in the double digit band and trended higher on all days of the week due to tighter system liquidity.
Specifically, a report by Lagos-based Afrinvest West Africa Limited showed that last Monday, aggregate system liquidity opened at about N93 billion from N118.7 billion the preceding Friday. In line with recent trends, Central Bank of Nigeria (CBN) mopped up a total of N107 billion from the system through its open market operations (OMO) auction last Monday, thus open buy back (OBB) and overnight rates settled at 20.2 per cent and 22.4 per cent respectively.
In the absence of a major inflow into the system, OBB and overnight rose to 27.3 per cent and 29.1 per cent last Tuesday, further surging 5.8 per cent and 6.4 per cent to 33.2 per cent and 35.5 per cent last Wednesday respectively.
A net effect of N293 billion OMO maturity and N139 billion worth of OMO mop up eased OBB and overnight to 17 per cent and 18.7 per cent respectively last Thursday. System liquidity further improved last Friday, due to previous day OMO maturity, thus OBB and overnight rates eased to 15.8 per cent and 16.4 per cent respectively. Consequently, OBB and overnight rates appreciated week-on-week, up 2.8 per cent and 1.1 per cent respectively.
The expected convergence of exchange rates at the interbank and parallel markets currently remained farfetched as the liquidity crisis in the currency market continued. Despite the re-admittance of the erstwhile suspended commercial banks into the interbank forex market, the naira/dollar exchange rate remained pressured during the week.
At the parallel market, the naira traded between N423/$1 and N425/$1 from Monday to Thursday before eventually closing the week at N424/$1 on Friday. Activity level at the interbank market waned compared to the preceding week as the naira/dollar spot rate traded at a tight band of N314.20/$1 and N314.92/$1 between Monday and midweek, before appreciating to N308/$1 last Thursday. The naira closed the week at N310.64/$1 on the interbank forex market.
The central bank intervened with dollar supply to the interbank market on most trading days of the week as autonomous suppliers remain scarce.
In the futures market, despite the AUG 16 2017 Futures contract trading at N241.00/US$1.00, the 1-Year forwards rate hovered between N352.00/US$1.00 and N354.70/US$1.00 during the week (save for Tuesday when it appreciated to N314.00/US$1.00), implying a weaker expectation for future price of the naira.
“In the week ahead, we expect activity level at the interbank to stay soft on the back of the general holidays declared by the federal government. We also opine that the apex bank may continue to intervene at the interbank in the interim in order to clear up rising forex demands,” Afrinvest stated.
Rising inflationary pressures and expectations continue to determine sovereign yields movement as rates remain attractive at an average of 16.2 per cent at the close of the week. Sentiments in the bonds market was broadly bearish last week as sell-offs were recorded across term structure. Average yields across sovereign benchmark instruments rose on all trading days of the week save for Monday when it declined 10 basis points to close at 14.9 per cent.
Consequently, average benchmark yield rose four basis points week-on-week to 15 per cent. Investors continue to show preference for shorter term bond instruments on the back of attractive yields.
The Debt Management Office (DMO) will this week be re-opening the JULY 2021, JAN 2026 and MAR 2036 bond instruments with offer amount ranging between N35 billion to N45 billion on each instrument.
“As inflationary pressures mount, investors remain highly cautious with bond investing while taking positions in mostly liquid bonds with shorter term to maturity and lower modified duration.
“Whilst our inflation outlook remains high with yield environment expected to stay elevated, we advise investors to position in sovereign bond instruments with lower modified duration given their tapered sensitivity to changes in yield environment. In the week ahead, we expect activities in the local bonds market to remain soft,” Afrinvest added.