BY CHARLES ABUEDE
This week, the Nigerian Naira is expected to remain largely stable across all segments of the FX market as the apex bank continues its weekly interventions in the market in a bid to continue safeguarding the local legal tender. But following the surprising outcome of the monetary policy committee meeting last week, the naira weakened further by N4 week on week to N610 per dollar at the parallel market after opening the week at N606 to a dollar. By the same token, the NAFEX rate opened the week at N419.03 against the greenback and closed at N419.50 per dollar on Friday, devaluing by N0.48 week on week. Meanwhile, the activity level in the I&E window was down 3.9 percent to $598.7 million from $622.8 million recorded in the previous week.
Also, at the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts settled at $3.5 billion, down 11.7 percent. Only two instruments – MAY 2023 with a contract price at N445.88 received the most buying interest last week with an additional subscription of $156.7 million (+156.0% w/w) which took the total value to $257.1 million. Straggled by the JUN 2022 instrument with a contract price of N427.24 with an additional subscription of $28.6 million (+10.4% w/w) valued at $304.2 million.
Fixed income market
Heading into the fixed income market this week, analysts say they expect the market to open on a muted note with a bearish tilt as investors continue to react to the rate hike from the CBN. In the NTB space, it is also expected to see pockets of sell-side action, given where rates closed at the Nigerian Treasury Bills auction last Wednesday.
Meanwhile, last week, the market started on a positive note. However, the decision by the MPC to hike interest rates by 150 basis points turned sentiment sour as a bearish bias pervaded across the market in subsequent sessions. Yields on benchmark bonds rose on average as investors aggressively sold-off papers at the long end of the market.
Last week, rates across money market instruments rose in response to the hike in MPR to 13 percent by the CBN Monetary Policy Committee (MPC) as the OPR and OVN rates rose 1.4 percentage points and 1.5 percentage points week on week respectively to settle at 13.7 percent and 14 percent in the interbank market, as system liquidity levels closed lower at N53.1 billion from the previous N92.5 billion.
In the same way, the CBN on Thursday conducted an OMO auction worth N20 billion, to mop-up inflows from maturities of about N30 billion. At the auction, demand for the 362-day instrument auction was robust (Offer: N10 billion; Subscription: N44.1 billion; Sale: N10 billion) as it was oversubscribed by 4.4x with a stop rate of 10.1 percent. Behind, the 110-day instrument (Offer: N5 billion; Subscription: N13.2 billion; Sale: N5 billion) was oversubscribed by 2.6x with a stop rate of 7 percent, while the 187-day instrument (Offer: N5 billion; Subscription: N11.3 billion; Sale: N5 billion) was oversubscribed by 2.3x with stop rate of 8.5 percent.
In another place, the T-bills secondary market recorded a bearish outing, as the MPC decision prompted sell-offs. The average yield across benchmark tenors rose 11 basis points week on week to close at 4 percent, with most sell-offs on the 182-day instrument (+52bps w/w to 4.3%) while the 364-day instrument rose 6 basis points week on week to 4.9 percent. On the flip side, the 91-day instrument saw buying interest as yields dipped by 26 basis points week on week to 2.7 percent.
Moreover, the CBN held its scheduled Primary Market Auction on May 25, selling Nigerian Treasury Bills worth N173.48 billion across the 91-day (N3.56 billion), 182-day (N1.25 billion), and 364-day (N168.67 billion) tenors. The stop rate for 91-day tenor, 182-day tenor, and 364-day tenor closed higher at 2.50 percent (+76 bps), 3.89 percent (+89 bps), and 6.49 percent (+179 bps), respectively. The auction was oversubscribed by 55 percent, with bid-to-cover ratios settling at 4.44x (91-day), 0.61x (182-day), and 1.47x (364-day).
And into the local bonds market, the market’s performance was underwhelming as traders adjusted to the MPR hike. The average bond yield rose 11 basis points week on week to 11.2 percent. Yields at the long-end of the curve recorded most sell pressure, rising on average by 23 basis points week on week, followed by the medium-dated instruments with a 3 basis points increase. Meanwhile, the short end of the curve saw mild buying interest as the average yield fell 2 basis points week on week
Elsewhere in the sub-Saharan Sovereign Eurobonds market, performance was bullish as the average yield fell 1.4 percentage points week on week to 14.2 percent as buying interest dominated the market. The South African 2022 and Nigerian 2022 yields declined the most, down 15.2 percent and 11.1 percent week on week, respectively, as the instruments approach maturity.
However, the African Corporate Eurobonds market closed the week bearish as the average yield increased 1.9 percentage points week on week to 13.1 percent following yield uptick in the Zenith Bank 2022 and BayPort 2022 instruments, up 17.7 percentage points and 12.9 percentage points week on week respectively.