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Optimism for revived FGN bonds, TBs trading as N364bn hit interbank

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*External reserves continued downward trend to $46.4

By Babajide Komolafe

By Babajide Komolafe

The financial markets ended last week with some optimism of revived demand for FGN bonds and treasury bills in the secondary market this week, anchored on expectation of    increased excess liquidity in the interbank money market due to    inflow of N364 billion    from maturing treasury bills.

Nigerian Stock Exchange
Nigerian Stock Exchange NSE

Last week the decline in yields on FGN bonds persisted for the second week, as continued sell-offs by offshore investors persisted.

According to analysts at Lagos based Meristem Securities Limited, “ The bearish mood in the equities market was mirrored in the secondary market for bonds this week, as selling pressure reined. The average bond yield advanced by 0.47 percent to settle at 14.53 percent. The yield on 17 instruments advanced while one instrument traded flat.”

Analysts at Cowry Assets Management Limited similarly noted: “In the just concluded week, FGN bonds traded at the over-the-counter (OTC) segment depreciated in value for all maturities tracked on sustained bearish activity as sell-offs by foreign portfolio investors weighed on the market.”

Consequently,    the price of    the 20-year, 10% FGN JULY 2030 debt, dropped    by N2.42,    while the yield rose to 14.87 percent, from 14.33 percent;    price of the 10-year, 16.39% FGN JAN 2022 debt dropped by N1.79, while the yield rose to    14.37 percent    from 13.74 percent; price of the    7-year, 16.00% FGN JUN 2019 debt    dropped by N0.45 while the yield rose to    13.23 percent from 12.74 percent; price of the    5-year, 14.50% FGN JUL 2021 debt decreased by N1.47 while the yield rose to    14.66 percent from 14.04 percent.

In the same vein, the value of the FGN Eurobonds traded on the London Stock Exchange depreciated for another week for all maturities tracked.

As result,      the 10- year, 6.75% JAN 28, 2021 bond lost $0.48 while the yield rose to 5.47 percent from 5.27 percent; the 10-year, 6.38% JUL 12, 2023 note lost $1.17 while the yield rose to    6.50 percent from 6.22 percent; and the 15-year, 6.50% NOV 28, 2027 paper lost    $0.80 while the yield rose to    7.64 percent from 7.52 percent.

A similar scenario was played out in the secondary market for treasury bills, with    yields on the 1 month, 6 months and 12 months maturities increased to 10.34 percent    from 10.24 percent, 13.01 percent from 12.77 percent and 12.86 percent from 12.76 percent    respectively.

Analysts were however optimistic that this trend may be reversed this week,    following the upsurge in interbank money market liquidity, which closed at N460 billion last week,    due to low patronage for    the Open Market Operations (OMO) treasury bills (TBs)    sales conducted by the Central Bank of Nigeria to mop up liquidity last week.

In a bid to mop up inflow of    N473.4 billion from matured TBs last week, the CBN offered N450 billion worth of OMO bills. Patronage was however low, as total subscription stood 34 percent with investors purchasing      N153.54 billion of the  the 91- and 203-day bills at stop rates of 11.05 percent    and 12.15 percent respectively.

Consequently, cost of funds in the interbank money market fell slightly, with interest rate on Collateralised lending (Open Buy Back, OBB) falling by 59 basis points (bpts) to 7.83 percent last week from 8.42 percent the previous week. Also interest rate on Overnight lending dropped by 75 bpts to 8.5 percent from 9.25 percent the previous week.

Analysts opined that with closing excess liquidity of N460 billion from last week combined with inflow of N364 billion from maturing bills this week, investors (local) will shift attention to the secondary market for bonds and treasury bills especially with a view to take advantage of the high yield in the market.

We expect this bearish trend to persist amidst continued pressure on Emerging Markets assets. We however expect intermittent demand from local clients looking to take advantage of higher yields in the market”, said analysts at Lagos based Zedcrest Capital Limited.

Analysts at Cowry Assets also projected that, “This week, we expect FGN bond prices to increase, with corresponding fall in yields,    at the Over-The-Counter (OTC) market amid expected ease in financial system liquidity.”

Naira depreciates as decline in external reserves persist

The naira last week depreciated in the parallel market and Investor and Exporters (I&E) window while the nation’s external reserves maintained downward trend for the sixth consecutive weeks.

The naira depreciated by 60 kobo in the      parallel market, while it lost 50 kobo in the I&E window.

According to, the live exchange rate platform of the Association of Bureaux De Change Operators (ABCON), the parallel market exchange rose to N359.6 per dollar last week from N359 the previous week, translating to 60 kobo depreciation of the naira.

Data by the FMDQ showed that the indicative exchange rate for the I&E window rose to N362.5 per dollar last week from N362 per dollar the previous week, indicating 50 kobo appreciation for the naira.

However, the volume of dollars traded in the window rose by 49 percent last week to $1.488 billion from $996.73 million the previous week, while the CBN maintained its weekly dollar injection of $210 million into the interbank foreign exchange market.

Meanwhile, the nation’s external reserves fell last week for the sixth consecutive weeks to $46.4 million.

The CBN reported that the reserves fell to $46.419 billion last week Thursday from $46.701 billion previous week Thursday, representing weekly decline of $282 million.

Financial Vanguard analysis revealed that the reserves have been falling since Thursday July 5th when it peaked at $47.798 million.

Since then the reserves have declined by $1.379 billion or 2.9 percent, occasioned by increased foreign exchange intervention by the CBN in its bid to forestall depreciation of the naira in the face of increased dollar demand by foreign portfolio investors exiting the nation’s debt market.

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