(Greenwich Merchant Bank): This week, the T-bills market took a bearish posture today, triggered by last-minute profit-booking aftermarket players had waited patiently week-long to assess the new CBN policy on Special Bills. In focus, the average T-bills yield saw an uptick of 2bps to 0.1% fueled by the sole selloff on the 14-Oct-21 instrument (+44bps) while the rest of the market remained flat.
The trade on Friday ended the streak of quiet sessions that dominated the week. In perspective, the CBN had earlier in the week announced that it would return banks’ excess CRR via Special Bills prompting investors to adopt a wait-and-see approach until the yield of that bill could be determined.
Also, the CBN released the T-bills issuance programme for Q1:2020 revealing plans by the DMO for a complete rollover of the NGN850.4bn that would mature over the period. Across tenors, NGN76.82bn (91-day), NGN176.86bn (182-day), and NGN596.74bn (364-day) will be offered for sale.
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Similarly, yields in the OMO market rose from their rock-bottom to an average of 0.2%, 8bps higher than their close on Friday last week. Also, the CBN mopped up NGN60.00bn from the system on Thursday in its Primary Market Auction (PMA), with stop rates for the 124-day paper (NGN4.00bn) paper clearing at 1.99%, 194-day (NGN6.00bn) at 4.85%, and 362-day (NGN50.0bn) at 6.245%.
In the money market, the Over Night rate and Open Buy Back trended higher to 3.6% and 4.3% apiece from 1.3% and 1.5%, in line with our projection that funding rates would close the week elevated. We note that for most of the week rates were benign due to persistent surfeit system liquidity.
Next week, OMO bills worth NGN294.12bn will hit the system and bolster the liquidity level. In addition, Nigerian T-bills valued at NGN50.93bn would be maturing in the week, albeit a total roll-over of the bills mean zero net inflow at the PMA.
In contrast to the bullish close of the Bonds market last week, investors’ knee-jerk reaction to the aforementioned CBN policy expanded the yield curve. Across the curve, the market sold off the mid-tenor the most (+48bps) followed by the long end (+18bps) while bargain-hunting on the short end (+9bps). The 18-APR-2037 instrument (+129bps) saw the largest yield rise.
Overall, the yields expanded 20bps to an average of 4.1%. Into the new week, investors will remain on the edge in anticipation of the CBN Special Bills.
In the Parallel FX market,
the Naira reclaimed ground market, closing at NGN475.00/USD on Friday compared to NGN500.00/USD in the prior week. The 5% or NGN25.00/USD advancement WoW came on the back of CBN’s new directives on USD FX diaspora remittances which may lead to an increased supply of the greenback. In the I&EW, the Naira traded at NGN395.00/USD, up from NGN390.25/USD (NGN4.75 gain WoW).