CBN BDC Sales: Speculative Supply Hit The Streets Bringing Parallel Market Exchange Rates Down

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By Zedcrest Capital/


FGN Bonds

It was an unremarkable trading session for FGN bonds to start off the new month, as the lull in the market mood continues to hang overhead. Despite continued wide quoted spreads, some trades were executed at mid-levels at the long-end of the curve, most notably the 2049s securities which traded at 10.15%. Demand remains strong for short-dated bonds, as the 2023s remained bid for most of the session, with little supply to match. By and large, the benchmark bond curve remained unchanged D/D at the close of the trade session.

We expect the market to remain weak at these levels in the interim, as local and offshore investors continue to be risk off for bonds. As offers improve however, we expect to see some cherry picking along the curve, especially at the long-end with offers north of 10%.

 

Benchmark FGN Bonds
Description Bid (%) Offer (%) Day Change (%)  
16.39 27-Jan-22 7.19 2.95 (0.02)  
12.75 27-Apr-23 6.48 5.30 (0.01)  
14.20 14-Mar-24 7.63 5.38 0.00  
13.53 23-Mar-25 7.02 5.28 0.00  
12.50 22-Jan-26 7.86 6.57 0.00  
16.29 17-Mar-27 8.09 7.77 0.00  
13.98 23-Feb-28 8.48 7.73 0.00  
14.55 26-Apr-29 9.12 8.34 0.14  
12.15 18-Jul-34 9.99 9.46 0.00  
12.40 18-Mar-36 10.08 9.75 0.00  
16.2499 18-Apr-37 10.29 9.88 0.00  
14.80 26-Apr-49 10.24 9.86 0.00  

 

Treasury Bills

The OMO bills had an active session, with demand driven by local banks following the Central Bank’s directive effectively lowering the cost of funding deposits for local banks. We noted demand across the curve, with mid-dated papers (December maturities) trading at mid-2% levels while the long-dated papers (August maturities) traded comfortably around mid-3% levels as well.

We expect market demand to persist for most of the month, as banks position ahead of the expected liquidity from OMO maturities as well as bond coupon payments totaling c.N1.4trn.

 

Benchmark OMO Bills
Description Bid (%) Offer (%) Day Change (%)
NGOMO 10/1/2020 5.00 0.01 0.00
NGOMO 11/03/2020 5.50 0.01 0.00
NGOMO 12/01/2020 6.00 0.01 0.00
NGOMO 01/05/2021 6.00 0.01 0.00
NGOMO 02/02/2021 5.00 0.01 0.00
NGOMO 03/02/21 5.50 0.01 0.00
NGOMO 05/11/21 6.00 0.01 0.00
NGOMO 06/08/21 8.00 0.01 0.00
NGOMO 08/10/21 7.00 0.01 0.00
 

Benchmark NTBills

Description Bid (%) Offer (%) Day Change (%)
NIGTB 10/1/2020 3.50 0.01 0.00
NIGTB 11/12/2020 3.00 0.01 0.00
NIGTB 12/31/2020 3.50 0.01 0.00
NIGTB 01/14/2021 3.50 0.01 0.00
NIGTB 02/11/2021 3.50 0.01 0.00
NIGTB 04/29/2021 3.50 0.01 0.00
NIGTB 05/13/21 4.00 0.01 0.00
NIGTB 06/10/21 4.00 0.01 0.00
NIGTB 07/01/21 4.00 0.01 0.00
NIGTB 08/26/21 4.00 0.01 0.00

 

Money Markets

The interbank system liquidity improved slightly by c.N10bn to open the new month at c.N255BN positive, leading to a drop in OBB and OVN rates by 329bps to close at 5.75% and 6.38% respectively.
We expect rates to remain low for most of the coming months supported by ample system liquidity and expected inflows from OMO maturities.

 

Money Market Rates
  Current (%) Previous (%)
Open Buy Back (OBB) 5.75 9.10
Overnight (O/N) 6.38 9.60

 

FX Market

The spark from the CBN’s circular to resume sales of FX cash BDCs has lit up activity in the FX markets, although mostly at the parallel markets. Rates for both cash and transfer rates strengthened off improved supply from speculative traders as well as retail users in anticipation of the supply from the Apex Bank. Cash rates traded at N440.00/$ at the close of the trading session, N20.00k stronger from an open of N460.00/$ while the Transfer appreciated by N15.00k, all in a single day.

We expect the parallel market rates to continue to converge towards the official markets as speculative supply continues to hit the streets, however we anticipate this lower rates to be short-lived as the market continues to show doubts of the size of the CBN’s war-chest to meet up the long outstanding demand for the greenback.

FX Market
Current (N/$) Previous ( N/$)
CBN Spot 379.00 379.00
CBN SMIS 380.69 380.69
I&E FX Window 386.00 385.67
Cash Market 440.00 460.00
Transfer Market 460.00 475.00

 

Eurobonds

The NIGERIA Sovereigns Eurobond curve strengthened in today’s session, benefiting from a general improvement towards the Sub-Saharan African sovereign papers lead by EGYPT, ANGOLA and SOAF papers. We noted improved bids across the Nigerian sovereign curve, with the NIGERIA 2027s (-34bps) the most actively traded paper on the day. Consequently, yields compressed by c.21bps across the sovereign curve.

The NIGERIA Corporates has a quiet session, with improved offers seen on the FIDBAN 2022s paper in an otherwise unremarkable trading session for the tracked papers.

 

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