MPC outcome to drive T-bills trading; healthy PMA, N17bn coupon for bonds

BY CHARLES ABUEDE

Trading in the fixed income space this week is projected to witness a muted bonds market trading with investors on a waiting queue for the next primary market auction (PMA) by the Debt Management Office (DMO).

Analysts also say they anticipate tepid trading in the Nigerian Treasury Bills segment as players hold their breath for the outcome of the Monetary Policy Committee (MPC) meeting for rate direction.

“This week, liquidity condition is expected to decline due to minute inflows from coupon payment (N17.9bn) and OMO maturity (N15bn) as such, funding rates are anticipated to rise. Meanwhile, interest in the secondary market is likely to be sustained. We also expect demand to be healthy at the PMA, thus setting the pace for trading in the secondary market,” said one group of analysts.

A quick snapshot shows that the fixed income market traded generally bullish last week with yields trending downhill across all three segments of the secondary market. And in the bonds space, the yield on benchmark bonds eased 0.05 percent on average and was driven by buy-side activity at the short end of the market. By the same token, the Nigerian Treasury Bills saw demand at the midpoint of the curve as the average yield declined 0.015 percent. As a final point in the OMO space, yields declined 0.07 percent on average, driven by buy-side activity at the short end of the market.

FX Market

The widening FX gap between the official exchange rate and the parallel market has remained a high point of concern for both importers, exporters and traders alike as the local currency continues to grapple with strength against the dollar across various FX segments in the face of policy normalisation by the Fed and ahead the MPC meeting to be headed by the CBN governor this week.

Consequently, the dominant exchange rate across the different FX segments of the market was bearish as at the parallel market segment of the market, the naira traded at N599 per dollar and depreciated N10 week on week from N589 to the dollar the previous week. Also, the bears ruled the Investors’ & Exporters’ (I&E) Window as the NAFEX rate opened the week at N417.75 to a dollar and closed at N419 per dollar on Friday, depreciating N2.75 week on week from N417 per dollar the prior week. Meanwhile, the activity level in the I&E Window inched higher by 54.7 percent week on week to $664.2 million from $429.5 million in the previous week.

Further at the FMDQ Securities Exchange (SE) FX Contract Market, the total value of open contracts of the Naira settled at $3.9 billion, up $116.6 million or 3.1 percent from $3.8 billion the prior week. The APR 2023 instrument with a contract price of N445.88 received the most buying interest with an additional subscription of $72.8 million which took the total value to $104.3 million. On the other hand, the MAY 2023 instrument with the contract price of N448.59 was the least subscribed instrument with an additional subscription of $43.8 million, bringing the total value to $90.4 million.

Money Market

Last week, the liquidity level remained robust and was supported by N40 billion and N125.6 billion worth of maturities inflows from the OMO and T-bills spaces, respectively. Nevertheless, the liquidity level declined at the end of the week to N247.3 billion compared to the prior week’s close of N444.3 billion. In view of that, money market rates expanded with the OPR and OVN rates closing the week higher by 392 basis points and 424 basis points, respectively, to 8.7 percent and 9.2 percent.

Additionally, the CBN held an OMO auction on Thursday selling bills worth N30 billion across the 103-day (N5 billion), 180-day (N5 billion), and 355-day (N20 billion) tenors with the stop rates remaining unchanged at 7 percent, 8.50 percent, and 10.1 percent, respectively. The auction was oversubscribed, indicating a subscription level of 1,041 percent or N312.44 billion. Meanwhile, demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 8.18x (103-day), 9.42x (180-day), and 11.22x (355-day), respectively.

The secondary market recorded a trivial gain as average T-bills yield dipped seven basis points week on week to 3.8 percent. The 91-day bills saw the most buying interest following a 54 basis point week on week fall in yields to three percent while the yield on the 182-day bills plunged seven basis points week on week to 3.6 percent. Elsewhere, demand for the long-dated instruments was subdued as yield rose 39 basis points week on week to 4.9 percent.

At the NTB auction on Wednesday, the CBN sold instruments worth N137.9 billion, N10.4 billion higher than the amount on offer as the demand for the 182 and 364-day instruments were strong while the bid-to-cover ratio closed at 2.7x and 3.0x respectively whereas interest in the 91-day instrument was low at 0.7x. Consequently, there was a nine basis points decline in the 364-day instrument stop rate to 4.7 percent due to higher demand while stop rates for the 91 and 364-day instruments remained at 1.7 percent and 3 percent respectively.

Bonds Market

Performance in the local bond market was bullish last week as a result of buying interest associated with attractive yields. Accordingly, the average yield fell three basis points to 11.2 percent. Yields at the long and mid-end of the curve declined six basis points and five basis points week on week, respectively; and on the flip side, the yields on the short-term instrument rose eight basis points week on week.

Also, the sub-Saharan Sovereign Eurobonds market was bearish as the average yield rose 105 basis points week on week to 14.6 percent. The Zambian 2022 and Nigerian 2022 instruments led losers as yield rose 13.2 percent and 5.9 percent week on week respectively. Conversely, the South African 2022 instrument saw the most buying interest as the yield fell 2.8 percent week on week.