CBN Sells N454bn Treasury Bills in Liquidity Mop UP



By Obinna Chima

The Central Bank of Nigeria (CBN) last week sold treasury bills worth N454.16 billion via open market operations (OMO). But a report by analysts at Cowry Asset Management Limited that disclosed this at the weekend, pointed out that the outflows from the treasury bills sales were partly offset by a N296.61 billion in the matured fixed income instrument.

Also, the Standing Deposit Facility (SDF) week-on-week fell by 7.34 per cent to N528.33 billion. Consequently, the Nigerian Interbank Offered Rates (NIBOR) rose for all tenor buckets amid renewed liquidity strain.

Specifically, the NIBOR for overnight, one-month, 3-month and 6-month tenor buckets rose week-on-week to 76.05 per cent (from 3%), 14.50 per cent (from 11.27%), 15.47 per cent (from 12.94%) and 16.67 per cent (from 14.13%) respectively.

On the other hand, the Nigerian Interbank Treasury Bills True Yields (NITTY) rose for all maturities on renewed sell pressure. For instance, yields on the one-month, 3 -month, 6-month and 12-month maturities rose to 13.08 per cent (from 9.31%), 13.59 per cent (from 10.90%), 13.76 per cent (from 11.31%) and 13.68 per cent (from 11.94%) respectively.

This week, the CBN is expected to selltreasury bills amounting to N33.84 billion via  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, which will partly offset the maturing treasury bills worth 330.30 billion.

“Hence, we anticipate ease in financial system liquidity with resultant moderation in interbank rates if CBN does not aggressively mop up via OMO sales,” Cowry Asset Management stated.

Forex Market

In their assessment of the performance of the foreign exchange (forex) market, analysts at Afrinvest Securities Limited, noted in its report that the impact of the sustained rally in oil prices as well as improvements in production volumes had continued to buoy the Nigerian external reserves which according to them had surpassed other African countries.

Nigeria’s forex reserves are currently about $48 billion.

Accordingly, the CBN continued its weekly intervention as it sold US$210million last 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 rate last week opened the week at N305.75/US$1.00, a five kobo depreciation from the preceding week and remained at this level all through the week. Also, parallel market rates depreciated slightly to N363 to a dollar last week, from the N362 it was previously.

However, in the Investors & Exporters (I&E) FX window, the naira appreciatedby four 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$1 last Friday. Similarly, activity level in the I & E FX Window strengthened in the week, rising 63.3per cent to US$1.3 billion week-on-week from the US$782.1 million recorded the preceding week.
At the FMDQ OTC futures market, the total value of open contracts increased by 7.8 per cent to US$3.7 billion, from US$3.4 billion recorded the precedingweek.

It showed that the MAR 2019 instrument was the most subscribed instrument in the week with an additional subscription of US$68million, while the MAY 2018, JULY 2018, SEPT 2018 and FEB 2019 stayed flat all through the week.
“In 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,” Afrinvest stated.

Bond Market

The bearish sentiment in the domestic bond market continued last 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 except lastTuesday as it settled at 12.9 per cent on Friday, up 24 basis points week-on-week. But yields rose on average all through the week until last Thursday when it marginally moderated by one basis point, but the market sold off lastFriday, to end the week bearish. Despite the downside risks of rising interest rates in the U.S and strengthening US dollar, which spiked markets in the last two weeks, Afrinvest analysts argued that “local 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.”

 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 in foreign currency (FCY) sovereign debts of Nigeria, Gabon, and Ivory Coast, which recorded 11 basis points, 30 basis pointsand nine basis points week-on-weekcompression in yields respectively.

But the ongoing rout in emerging markets 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 IMF’s Extended Credit Facility, placed a US$1 billion 10-year bond at 7.6 per cent while the 30-Year US$1 billion tranche was priced at 8.6 per cent.

On the other hand, sentiment on Nigerian corporate Eurobonds was largely mixed as yields fell on seveninstruments tracked and rose on four others. Specifically, yield on ACCESS 2021 Senior debt rose 44 basis points week-on-week to 6.8 per cent, to record the worst performance while ZENITH 2019 recorded the best performance. The best performing instruments year-to-date was  Diamond 2019 and FirstBank 2021 which have returned 5.1per cent and 3.1 per cent respectively.

“Interest rate normalisation in advanced economies remain a key downside risk to performance of African Eurobonds, as shown by the relatively weak performance of bonds thus far in 2018 compared to the bull market in 2017.

“Nonetheless, rising commodity prices and consequent moderation in credit risks of several African sovereigns will provide some buffer on performance of FCY debt instruments,” Afrinvest stated.

Foreign Portfolio Investments

The value of foreign investors’ holdings of Nigeria’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 Fund’s Mission Chief to Nigeria, Mr. Amine Mati, who disclosed last week while making a presentation at the Moody’s Investors Service Fourth Annual West Africa Summit titled: ‘Nigeria’s Recovery: Slow and Sturdy,’ that took place in Lagos, put the value of foreign investors’ holdings in domestic debt instruments in Nigeria previously at about $4 billion.

In addition, he said Nigeria’s equities market has also seen increased interest by foreign investors.

“The number of investors that keep coming to my office (to make enquiries about investing in Nigeria) keeps rising.
“Last 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,” 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 nation’s capital also overtook with an inflow of $3.54 billion, the National Bureau of Statistics (NBS), revealed in its latest ‘Capital Importation (Q1)’ report.

This indicated 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.

The NBS also revealed in its just-released ‘Nigerian Capital Importation (Q1 2018)’ report 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- on–year) from $908.3 million in Q1 2017.