Buying interest to drive bonds; bulls for OMO, T-bills

BY: CHARLES ABUEDE

. As N110bn worth of bills hit the system

. Naira to trade tight after being down N3 w/w to N577/$1 in the streets

Foreign Exchange Market

Beginning from the foreign exchange market, the prevailing exchange rate across the different segments of the FX market was relatively stable. And as was witnessed through the week, the Nigerian Naira closed the week at N577 to the United States dollar at the parallel market from N574 the previous week, depreciating N3 week on week. At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate opened the week at N415.67 per dollar and closed at N416.67 to the one dollar on Friday, depreciating 67 kobo week on week from N410.33 to the greenback the prior week.

However, the activity level in the I&E Window inched higher by 5.1 percent week on week to $567.8 million from $540.2 million in the previous week. This week, currency experts and traders expect rates to trade within a tight band across the different FX segments of the market.

At the FMDQ Securities Exchange (SE) FX Contract Market, the total value of open contracts of the Naira settled at $4.5 billion, rising $22.3 million or 0.5 percent from $4.4 billion the prior week. The February 2023 instrument having a contract price of N445.88 received the most buying interest with an additional subscription of $10 million which took total value to $93.2 million. On the other hand, the March 2022 instrument having a contract price of N427.24 was the least subscribed instrument with an additional subscription of $6.5 million, bringing the total value to $503.3 million.

Money Market and Treasury Bills

This week in the money and secondary treasury bills market, market participants anticipate a sustained positive performance in the secondary market as OMO maturity worth N110 billion is scheduled to hit the system.

In that same vein, liquidity level last week surged to N571.4 billion compared to a deficit of N96.1 billion in the prior week, partly supported by the OMO maturities of N70 billion which hit the system. For that reason, the OPR and OVN rates closed the week lower at 13.3 percent and 13.8 percent respectively, from 14.8 percent and 15 percent in the previous week.

Further afield, due to the robust system liquidity available, secondary market performance was bullish as average treasury bills yield declined by 35 basis points week on week to 3.6 percent. As such, buying interest was noticed across the curve, except the short-dated instruments with a yield uptick of 6 basis points week on week to close at 3.3 percent. However, buying interest persisted on the mid-and long-ends of the curve as average yields dipped 2 basis points and 109 basis points week on week, respectively, to 3.5 percent and 4.0 percent.

Bonds Market

This week in the bond market, experts and traders expect average bond yields in the domestic bond market to edge lower on account of investors’ buying interest. Also, it is expected that the negative performance in the Eurobond space would persist driven by uncertainty around global monetary policy and the Russia-Ukraine crisis

Last week, the average bond yield in the domestic market dipped 52 basis points to close at 10.6 percent from 11.1 percent in the previous week. The medium-term dated bonds recorded the most buying interest as average yield declined 90 basis points, followed by the short and long term dated bonds, which saw average yield fall 47 basis points and 17 basis points, respectively.

Elsewhere in the Eurobonds market, performance was largely bearish as the average yield on sovereign bonds closed 127 basis points higher week on week. To this, the average yield on the Zambian sovereign bonds closed 482 basis points higher week on week followed by Ghanaian bond with a close of 215 basis points, Kenyan bond closed with 121 basis points, Ivorian bond recorded 70 basis points on its yield, and Nigerian bond wrapped the week with 60 basis points at the close.

On the other hand, the Zambian 2022 instrument experienced the most selloffs, as average yield rose 1080 basis points week on week, while South Africa 2022 bond received the most buying interest with a 23 basis points decline in yield. The same was seen for the Corporate Eurobonds market, which ended the week bearish as average yield rose by 43 basis points week on week with most selloffs witnessed on Transnet Soc Ltd 2022 instrument as it closed the week with 178 basis points).