Fixed Income Market: Local investors seek fortunes in FGN bonds as liquidity sustains downtrend in PMA

By Charles Abuede

• Naira still on its knees‭, ‬down 6.7%‭ ‬or N33‭ ‬in November
• Analysts‭, ‬investors look to N418.92bn inflows from‭ ‬maturing OMO bills‭, ‬N5.63bn in bond coupon payment.

FX Market:

The CBN, in a bid to inject more liquidity and ease demand pressures in the currency market has sold over $1 billion to Bureau De Changes since September this year. However, the volatility in the market has remained persistent.

In the street foreign exchange trading, the naira appears to be rooted on its knees as it weakened further by N11 against the dollar to trade at N495 to the greenback at the close of the week, from its close of N484 against the dollar in the previous week. Consequently, the local currency depreciated by N33 or 6.7 per cent against the United States dollar since the start of November. The I&E window was also pressured, closing N4.42 weaker to trade at N390.25 against the dollar last week when compared with the N385.83 per dollar close the previous week. Notably, the I&EW hit a high of N393.25 to the greenback during the week while the CBN official window remains unchanged at N379 to a dollar.

Based on a circular from the CBN, there has been an adjustment in the following rates effective November 30, 2020 as follows:

i) IMTOs to banks  N388 per USD

ii) Banks to CBN  N389 per USD

iii) CBN to BDCs  N390 per USD

iv) BDCs to end-users  to be sold at not more than N392 per USD

Notably, the volume of sales for each market was pegged at $10,000 per BDC.

Elsewhere, the Overnight and Open Buy Back eased to 1.3 per cent and 1.5 per cent from 4.3 per cent and 3.3 per cent respectively last week, following robust system liquidity supported by inflows from coupon payment and maturities in the week.

Treasury Bills Market:

Activity in the T-bills market was muted as trades settled mostly flat week on week due to low yield environment. On the average, yields dipped 1 basis point to 0.1 per cent, masking investors’ cherry-picking at the tail of the curve. Even though trading oscillated between the bulls and bears at the start of the week, the market tempo waned despite unfilled orders from Wednesday’s PMA.

At the PMA, strong appetite for the bills on offer drove stop rates to record lows. The apex bank sold N150.60 billion worth of bills across 91-day (N20.37 billion), 182-day (N19.16 billion), and 364-day (N111.07 billion). Bid coverage ratio came in at 2.8x, 2.9x and 3.0x as stop rates trended south to 0.0215 per cent (91-day), 0.09 per cent (182-day) and 0.15 per cent (364-day) from 0.035 per cent, 0.15 per cent and 0.30 per cent respectively.

Moving on, bullish sentiment pervaded the OMO market pushing the average yield across the curve to decline by 5 basis points to close at 0.10 per cent as against the last close of 0.15 per cent. Buying interest was seen across short-term and medium-term maturities with average yields falling by 7 basis points and 3 basis points, respectively. However, the average yield across long-term maturities closed flat at 0.15 per cent. Yields on 15 bills compressed with the 16-Feb-21 maturity bill recording the highest yield decline of 9 basis points, while yields on 8 bills remained unchanged.

Bond Market:

FGN bonds secondary market closed on a positive note at the close of the week, as the average bond yield across the curve cleared lower by 1 basis point to close at 1.60 per cent from 1.61 per cent on the previous day. Average yields across short tenor, medium tenor, and long tenor of the curve declined by 1 basis point, 4 basis points, and 5 basis points, respectively.

The 17-MAR-2027 maturity bond was the best performer with a decline in yield of 32 basis points, while the 27-MAR-2035 maturity bond was the worst performer with an increase in yield of 6 basis points.