By Babajide Komolafe
COST of funds is expected to moderate downward this week, in response to inflow of N177 billion from matured Treasury Bills (TBs).
This expectation is however predicated on reduced or zero liquidity mop-ups by the Central Bank of Nigeria (CBN).
Last week, the apex bank mopped up N364.2 billion from the interbank money market through issuance of Open Market Operations (OMO) TBs.
This comprised N116.2 billion OMO bills sold on Monday and N248 billion OMO bills sold on Friday.
In addition, the apex bank sold primary market TBs worth N54 billion during the week, hence the market experienced N418.2 billion outflow through TBs. This, as well as outflow to fund dollar purchases cancelled out the impact of N259 billion inflows through matured TBs.
As a result, average short term cost of funds rose by 1,250 basis points (bpts) when compared to the level in the previous week.
Data from the Financial Market Dealers Quote (FMDQ) showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 1,103 bpts to 20.83 percent at the close of last week from 9.8 percent the previous week.
Similarly, interest rate on Overnight lending rose by 1,400 bpts to 23.17 percent last week from 9.17 percent the previous week.
Analysts however expect this trend to reverse this week, due to inflow of N177 billion from maturing TBs.
“This week, treasury bills worth N177.31 billion will mature via secondary market, hence, we expect moderation in interbank lending rates amidst ease in financial system liquidity”, said analysts at Lagos based investment firm, Cowry Asset Management Limited.
Bond auction: Investors’ preference for longer dated bonds persist
Results of the FGN bond auction conducted by the Debt Management Office (DMO) last week indicated sustained investors’ preference for longer dated bonds in anticipation of further moderation in yields on government securities.
The DMO offered N70 billion worth of bonds in three tenors of 5-years, 7-years and 10 years, while investors demanded for N142.81 billion, indicating 204 percent oversubscription.
Analysis however revealed that the 10-years recorded the highest patronage from investors.
The 10-years bond recorded 229 percent over-subscription, the 5-years bond recorded 89 percent over-subscription, while the 7-years bond recorded 16 percent under-subscription.
The 5-year bond was allotted at 13.53 percent, while the 7-years bond and 10-years bond were allotted at 13.53 percent and 13.60 percent.
In their review of investors’ response to the bond auction, analysts at Lagos based Afrinvest Limited said: “In line with expectation, demand for the longer dated 10-year instrument was stronger in anticipation of further moderation in the interest rate environment. “The 10-year 13.98 percent FEB 2028 instrument received the highest subscription of N98.8 billion, which is 3.3 times more than the N30 billion offered.
“Investor sentiment towards the 5-year 14.5 percent JUL 2021 instrument was also positive with a subscription N18.9 billion, which is 1.9 more than the N10 billion offered
“However, the 7-year new issue which was allotted at a marginal rate of 13.5 percent was undersubscribed as the total subscription of N25.2 billion was below N30 billion offered. Marginal rates of the 5-Year and 10-Year bonds were 30bps and 38bps lower than February auction.
“Our outlook for yields remains bullish on expectation of monetary policy easing and FGN debt strategy.”
Naira appreciates as CBN injects N549.8bn
The naira last week appreciated in parallel market and the Investors and Exporters (I&E) window, even as the CBN injected $549.89 million into the foreign exchange market.
Financial Vanguard analysis showed that the naira appreciated by N1 in the parallel market as the parallel market exchange rate dropped to N362 per dollar last week from N363 per dollar the previous week.
At the Investors and Exporters (I&E) window, the naira recorded its first appreciation in three weeks, as the indicative exchange rate dropped to N360 per dollar from N360.57 per dollar the previous week. This represented 57 kobo appreciation for the naira.
However, the volume of dollars traded in the window, (turnover) dropped by 27 percent to $1.09 billion last week from $1.52 billion the previous week. Year-to-date turnover however increased to $13.88 billion from $12.78 billion the previous week.
Meanwhile, the CBN increased its weekly intervention in the foreign exchange market to $549.89 million last week.
On Monday, the apex bank sold $210 million comprising $100 million allocated to the wholesale segment, $55 million allocated to the SME window and $55million allocated to invisibles such payment of medical bills, school fees, Personal Travel Allowance (PTA), and Business Travel Allowance (BTA).
On Friday, the apex bank intervened with another $339.89 million injected into the Retail Secondary Market Intervention Sales (SMIS).
Announcing the intervention on Friday, Acting Director, Corporate Communications, Mr. Isaac Okorafor, said the amount released was for requests in the agricultural, airlines, petroleum products and raw materials and machinery sectors.
He said that the continued interventions were in line with the pledge made by the Governor, Godwin Emefiele, to sustain market liquidity in order to boost production and trade.
According to Okorafor, the feedback from the wholesale and retail segments of the Nigerian Forex markets showed that customers were satisfied with their level of access to foreign exchange. He also assured Nigerians that the recent confirmation of Deputy Governors and Monetary Policy Committee (MPC) nominees by the Senate will further spur the bank towards taking sound decisions needed for economic development.