System liquidity to drive T-bills; post-auction sentiments on bonds

In the light of low FX supply in the currency market and the never slowing demand for dollars in the market by FX users, the naira fell in dropped on Thursday to N422 per dollar at the investors’ and exporters’ window but closed the week appreciating by 1.66 percent at N415.07 to the dollar as most market participants maintained bids of between N404 and N436 per dollar.

Currency analysts say they expect to see the domestic currency trade calmly across various market segments as the CBN continues its interventions in the market this week.

At the close of the week money market rates rose by an average of about 863 basis points following the FX retail auction by the CBN. Similarly, the Overnight (O/N) rate increased by 8.75 percentage points to close at 20 percent as against the last close of 11.25 percent, and the Open Buy Back (OBB) rate rose by 8.50 percentage points to close at 19.50 percent.

Further into the fixed income space, trading activities were largely on the positive side with the Nigerian treasury bills and OMO bills spaces easing on the weekly average while the benchmark bond yields stayed unchanged from the previous week.

The week closed flat at the Nigerian T-bills market with the average yield across the curve remaining unchanged at 5.20 percent despite the week seeing investors pursue tenors across the mid-long end of the curve, which had forced yields across the space to ease on the average.

Average yields across short-term, medium-term, and long-term maturities closed the week flat at 3.25 percent, 4.09 percent and 6.57 percent, respectively.

And at the OMO market, throughout the week, buy- side activity at the mid-long end of the market saw average yields dip while the week closed with selling pressure across the short-term maturities with the average yield clearing higher.

Also, the average yields across the curve increased by 2 bps to close at 6.47 percent as against the last close of 6.45 percent. However, the average yields across medium-term and long-term maturities remained unchanged at the end of the week.

In addition, the CBN held an OMO auction on Thursday selling bills worth N50 billion across the 82-day (N10 billion), 180-day (N10 billion), and 355-day (N30 billion) tenors with stop rates remaining unchanged at 7 percent, 8.50 percent, and 10.10 percent, respectively. The auction was oversubscribed, indicating a subscription level of 200 percent (N99.78 billion). Demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 1.40x (82-day), 1.72x (180-day), and 2.29x (355-day).

The bonds space witnessed mixed action during the week, as investors reacted to the latest bond auction; as a result, yields on benchmark bonds closed flat through the week.

Meanwhile, the week closed on Friday with the average bond yield across the curve clearing higher by 4 bps to close at 8.25 percent from 8.21 percent as of the previous close. However, the average yield across the short tenor of the curve rose by 8 basis points, while the average yields across medium tenor and long tenor of the curve fell by 5 basis points and 2 basis points, respectively. The 17-MAR-2027 maturity bond was the best performer with a decrease in the yield of 30 basis points, while the FGNSB 16-OCT-2022 bond was the worst performer with an increase in yield of 31 basis points.