By Obinna Chima
TheÂ Central Bank of Nigeria (CBN)Â last weekÂ sold treasury bills worth N454.16 billion viaÂ openÂ marketÂ operations (OMO).Â But a report by analysts at Cowry Asset Management Limited that disclosed this at the weekend, pointed out that theÂ outflowsÂ from the treasury bills sales wereÂ partly offset byÂ a N296.61 billion inÂ theÂ maturedÂ fixed income instrument.
Also, the Standing Deposit Facility (SDF) week-on-week fell by 7.34Â per centÂ to N528.33 billion. Consequently, theÂ NigerianÂ Interbank Offered Rates (NIBOR)Â rose for all tenor buckets amid renewed liquidity strain.
Specifically, the NIBOR for overnight, one-month, 3-monthÂ and 6-monthÂ tenor buckets rose week-on-weekÂ to 76.05Â per centÂ (from 3%), 14.50Â per centÂ (from 11.27%), 15.47Â per centÂ (from 12.94%) and 16.67Â per centÂ (from 14.13%) respectively.
On the other hand, the Nigerian Interbank Treasury Bills True Yields (NITTY)Â rose for all maturities on renewed sell pressure. For instance, yields on theÂ one-month, 3Â -month, 6-month and 12-month maturities rose to 13.08Â per centÂ (from 9.31%), 13.59Â per centÂ (from 10.90%), 13.76Â per cent (from 11.31%) and 13.68Â per centÂ (from 11.94%) respectively.
This week,Â theÂ CBNÂ is expected toÂ selltreasuryÂ bills amounting to N33.84 billion viaÂ Â the Primary market. A breakdown of this showed that the banking system regulator would auction91-day bills worth N3.38 billion, 182-day bills worth N16.92 billion and 364-day bills worth N13.54 billion,Â which willÂ partly offset the maturing treasury bills worth 330.30 billion.
â€œHence, we anticipate ease in financial system liquidity with resultant moderation in interbank rates if CBN does not aggressively mop up via OMO sales,â€ Cowry Asset Management stated.
In their assessment of the performance of the foreign exchange (forex) market, analysts at Afrinvest Securities Limited, noted in its report that theÂ impact of the sustained rally in oil prices as well as improvements in production volumes hadÂ continued to buoy the Nigerian external reserves whichÂ according to them hadÂ surpassed other African countries.
Nigeriaâ€™s forex reserves are currently about $48 billion.
Accordingly, the CBN continued its weekly interventionÂ as it soldÂ US$210million lastÂ Wednesday, via the wholesale SMIS (Secondary Market Intervention Sales) window in a bid to improve system liquidity and ensure stability across the different segments of the foreign exchange market.
As a result, the naira traded within tight limits during the week.
But the CBN official rateÂ last week opened the week at N305.75/US$1.00, a fiveÂ kobo depreciation from the precedingÂ week and remained at this level allÂ through theÂ week.Â Also, parallel market ratesÂ depreciated slightly toÂ N363Â to a dollar last week, from the N362 it was previously.
However, in the Investors & Exporters (I&E) FX window, the naira appreciatedby fourÂ kobo in the week. The NAFEX rate opened the week at N360.83/US$1 (unchanged from the preceding Friday) but depreciated to N360.87/US$1 by midweek before appreciating to N360.79/US$1Â last Friday. Similarly, activity level in the I & E FX Window strengthened in the week, rising 63.3per centÂ to US$1.3Â billionÂ week-on-weekÂ fromÂ theÂ US$782.1Â million recordedÂ the precedingÂ week.
At the FMDQ OTC futures market, the total value of open contracts increased by 7.8Â per centÂ to US$3.7Â billion,Â from US$3.4Â billion recordedÂ the precedingweek.
It showed that theÂ MAR 2019 instrument was the most subscribed instrument in the week with an additional subscription of US$68million,Â while the MAY 2018, JULY 2018, SEPT 2018 and FEB 2019 stayed flat all through the week.
â€œIn the coming week, we expect rates to remain at similar levels as the CBN continues with its weekly interventions to keep liquidity levels in the market,â€ Afrinvest stated.
The bearish sentiment in the domestic bond market continuedÂ lastÂ week as investors further reprised yields against the backdrop of recent pull back in emerging markets assets. Consequently, average yield across tenors trended higher on all trading days exceptÂ lastTuesdayÂ as itÂ settledÂ at 12.9Â per centÂ on Friday, up 24Â basis points week-on-week.Â But yields rose on average all through the week untilÂ lastÂ Thursday when it marginally moderatedÂ by one basis point, but the market sold offÂ lastFriday,Â to end the week bearish. Despite the downside risks of rising interest rates in the U.S and strengtheningÂ US dollar,Â which spiked markets in the last two weeks,Â Afrinvest analysts argued that â€œlocal fixed income yields still have some scope for compression in the near term given moderating inflation rate – anchoring the CBN policy easing bias – as well as improving macroeconomic fundamentals which should typically narrow credit spreads.â€
Â Nevertheless, across the Sub-Saharan Africa Eurobond market, there was a reversal in the bearish performance witnessed last week on the back of renewed buying interest inÂ foreign currency (FCY)Â sovereign debts of Nigeria,Â Gabon,Â and IvoryÂ Coast,Â which recorded 11Â basis points, 30Â basis pointsandÂ nine basis points week-on-weekcompression in yields respectively.
But theÂ ongoing rout inÂ emerging marketsÂ fixed income market did not stop Ghana from issuing its first Eurobond debt since 2016, joining other African sovereigns (Nigeria, Ivory Coast, Senegal, Egypt and Angola) in a record bond issuance year for the region.
The West African country, currently benefitting from the IMFâ€™s Extended Credit Facility, placed a US$1Â billion 10-year bond at 7.6Â per centÂ while the 30-Year US$1Â billion tranche was priced at 8.6Â per cent.
On the other hand, sentiment on NigerianÂ corporateÂ Eurobonds was largely mixed as yields fell onÂ seveninstruments trackedÂ and rose on four others.Â Specifically, yield on ACCESS 2021 Senior debt rose 44Â basis points week-on-weekÂ to 6.8Â per cent,Â to record the worst performance while ZENITH 2019Â recorded the best performance. The best performing instrumentsÂ year-to-date wasÂ Â DiamondÂ 2019 and FirstBankÂ 2021 which have returned 5.1per centÂ and 3.1Â per centÂ respectively.
â€œInterest rate normalisation in advanced economies remain a key downside risk to performance ofÂ AfricanÂ Eurobonds, as shown by the relatively weak performance of bonds thus far in 2018 compared to the bull market in 2017.
â€œNonetheless, rising commodity prices and consequent moderation in credit risks of severalÂ AfricanÂ sovereigns will provide some buffer on performance of FCY debt instruments,â€ Afrinvest stated.
Foreign Portfolio Investments
The value of foreign investorsâ€™ holdings of Nigeriaâ€™s local debt instruments rose significantly to $16 billion as of the end of March, signposting the renewed investor confidence in the country.
The International Monetary Fundâ€™s Mission Chief to Nigeria, Mr. Amine Mati, who disclosedÂ last weekÂ while making a presentation at the Moodyâ€™s Investors Service Fourth Annual West Africa Summit titled: â€˜Nigeriaâ€™s Recovery: Slow and Sturdy,â€™ that took place in Lagos, put the value of foreign investorsâ€™ holdings in domestic debt instruments in Nigeria previously at about $4 billion.
In addition, he said Nigeriaâ€™s equities market has also seen increased interest by foreign investors.
â€œThe number of investors that keep coming to my office (to make enquiries about investing in Nigeria) keeps rising.
â€œLast year, foreign holdings of local debt was about $4 billion, as at the end of March this year, foreign holdings of local debt was $16 billion, which shows a lot of interest in the country,â€ he explained.
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Foreign Capital Inflows
The Federal Capital Territory, Abuja has become the leading recipient of foreign capital inflows, commencing from the fourth quarter (Q4) of 2017.
In the first quarter (Q1) 2018, the nationâ€™s capital also overtook with an inflow of $3.54 billion, the National Bureau of Statistics (NBS), revealed in itsÂ latestÂ â€˜Capital Importation (Q1)â€™ report.
This indicatedÂ an increase of 32.24 per cent from the figure recorded in the previous quarter, when it reported $2.68 billion.
At the same time, capital importation to Lagos increased marginally by 4.59 per cent from $2.55 billion in the last quarter to $2.67 billion in Q1, 2018, while Capital Importation to Akwa Ibom was $43.62 million, which is a decline of 65.05 per cent from the figure reported last quarter ($124.85 million).
In contrast, Ogun, Bauchi, and Kano States witnessed strong growth in foreign capital inflow in the first quarter, each recording respective growth rates of 182.06 per cent, 370.59 per cent, and 154.84 per cent on a quarter-on-quarter basis.
TheÂ NBS also revealed in itsÂ just-released â€˜Nigerian Capital Importation (Q1 2018)â€™ reportÂ that the total value of capital imported into the country in the first three months (first quarter) of 2018 stood at $6,303.63 million, representing a 594 per cent increase (year- onâ€“year) from $908.3 million in Q1 2017.