CBN Resumes Liquidity Mop-up


The Central Bank of Nigeria (CBN) last week held a primary market auction as it offered 91-day, 182-day and 364-day instruments, which closed at marginal rates of 10.3 per cent, 12.6 per cent and 12.9 per cent respectively.

Oversubscription was recorded across all instruments on offer, which included:91-day (2 times bid-to-offer), 182-day (1.3 times bid-to-offer) and 364-day (2.3 times bid-to-offer), with a total amount of N95.7 billion successfully allotted in line with the offered amount.

According to a report by Afrinvest West Africa Limited, the CBN resumed its open market operation (OMO) auctions during the week, after holding no auction in the prior week.

The auction was held on the 4th of April for two instruments, 203-day and 304-day, which were auctioned at discount rates of 13 per cent and 13.04 per cent respectively.

The total amount allotted for the instruments were N24.6 billion (203-day) and N176.4 billion (304-day).
The report showed that the secondary market moved in line with liquidity levels at the start of the week as average yield in the market declined by 0.2 per cent to 13.4 per cent.

However, as liquidity levels moderated through the week, yields trended upwards, before paring on the final day of the week to settle the average yield at 13.4 per cent.

Also, given the scarce liquidity levels, money market rates – the open buy back (OBB) and overnight rose significantly during the week, settling 9.9 per cent and 10.2 per cent higher by the end of the week, to 19.7 per cent and 21 per cent respectively. “Given that system liquidity is expected to remain tempered as the CBN sustains OMO auctions, with N33 billion worth of instruments expected to mature on the 11th of April 2019, we expect rates to remain elevated,” it added.

FX Market

The naira last week appreciated at the Investors and Exporters foreign exchange (FX) window by 0.10 per cent to close at N360.33 to a dollar, amid a 0.97 per cent week-on-week rise in external reserves to $44.68 as at April 3, 2019. However, the interbank FX market the naira/dollar rate remained unchanged at N355.78/$ amid weekly injections of $210 million by the CBN into the FX market via the Secondary Market Intervention Sales (SMIS) of which: $100 million was allocated to Wholesale SMIS, $55 million was allocated to small and medium scale enterprises and $55 million was sold for invisibles. Also, the naira was flattish against the US dollar at the black market at N360/USD; but depreciated at the Bureau De Change (BDC) segment by 0.28 per cent to close N358/USD, according to a report by analysts at Cowry Assets Management Limited.

Meanwhile, the naira gained for most of the foreign exchange forward contracts as 1-month, 2- month, 3-month, 6-month and 12-months rates decreased by 0.16 per cent, 0.18 per cent, 0.16 per cent, 0.31 per cent and 0.64 per cent respectively to close at N362.96/dollar, N365.90/dollar, N369.19/dollar, N381.39/dollar and N403.57/dollar respectively.

But the spot rate rose (that is the naira lost) by 0.02 per cent to close at N307/USD.

“In the new week, we expect stability in the naira/dollar rate in most market segments, especially at the BDC segment, as CBN sustains its special interventions,” Cowry Assets predicted.

Bonds Market

To analysts at Afrinvest, activities at the bonds market last week further proved their earlier thesis that yields were yet to respond to changes in Monetary Policy Rate which was reduced to 13.5 per cent by the CBN’s Monetary Policy Committee at their last meeting.

They pointed out that unlike the pattern of trades in the previous week, the domestic bonds market was largely bearish in the week with average yield on sovereign bonds instruments increasing every trading day throughout the week.

Yields went up by six basis points, three basis points, six basis points, five basis points and four basis points on Monday, Tuesday, Wednesday, Thursday and Friday respectively, while average yield rose 23 basis points week-on-week.

At the close of the week, average yield rose to 14.27 per cent, from 14.04 per cent in the previous week.

Long dated bonds recorded the most sell-offs as average yields rose 26 basis points relative to average rise in yield of 21 basis points and seven basis points for medium and short-term bonds respectively.

Also, in line with its monthly bonds issuance programme, the Debt Management Office (DMO) last week offered 2-year and 3-year Savings Bonds maturing in April 10, 2021 and April 10, 2023 at 11.27 per cent and 12.276 per cent coupon respectively.

The Sovereign yield curve during the week was noticeably normal at the short-end while remaining flattish at the long-end of the curve.

“We believe the transitioning to full normalization will present enormous capital gain in the near term as we are certain that yield compression by 100 basis points to 200 basis points is inevitable, especially in the second half of 2019,” they added.

The Sub-Saharan Sovereign and Corporate Eurobonds market traded bullish during the week, a reversal of the bearish performance experienced in the previous week.

Average sovereign yield was down 50 basis points with the Zambian (-158bps), Ghanaian (-74bps), Gabonese (-72bps), Ivorian (66bps) and Nigerian (65bps) instruments recording the highest price appreciations.

On the corporate space, average yield was also down 71 basis points with Diamond 2019          (-119bps) enjoying the most buy interest as the instrument draws closer to maturity.

The International Monetary Fund last week has the Nigerian economy was recovering, giving President Muhammadu Buhari’s economic initiatives a pat on the back.

“Executive Directors welcomed Nigeria’s ongoing economic recovery, accompanied by reduced inflation and strengthened reserve buffers,” the IMF stated in its latest Executive Board’s 2019 Article IV Consultation with Nigeria.

It noted that real GDP increased by 1.9 per cent in 2018, up from 0.8 per cent in 2017, on the back of improvements in manufacturing and services, supported by spillovers from higher oil prices, ongoing convergence in exchange rates and strides to improve the business environment.

According to the Fund, headline inflation fell to 11.4 per cent at end-2018, reflecting declining food price inflation, weak consumer demand, a relatively stable exchange rate and tight monetary policy during most of 2018, but remains outside of the central bank’s target range of 6- 9 per cent.