External reserves record first weekly decline in 3 months
By Babajide Komolafe
THE declining trend of stop rates in the monthly FGN bond offer is expected to persist this week when the Debt Management Office, DMO, conduct the June offer of N100 billion.
The DMO since last year has been reducing stop rates on FGN bonds, taking advantage of huge demand for the bonds, driven by investors’ quest for higher returns especially foreign portfolio investors. As a result, stop rate on the five-year FGN bond declined by 109 basis points (bpts) to 14.11 percent at the last auction in May from 15.20 percent at the January auction.
Similarly stop rate on the 10-year FGN bond fell by 111 bpts to 14.24 percent in May from 15.35 percent in January. This trend, according to analysts, will persist this week during the N100 billion FGN bond offer for June. The offer comprise three tenors, five-years, 10-years and 30-years namely, N30 billion worth of 12.75% FGN APR 2023 (5-Yr Re-opening), N40 billion worth of FGN APR 2029 (10-Yr Re-opening), and N30 billion worth of FGN APR 2049 (30-Yr Re-opening).
“We expect the bonds to be issued at lower stop rates amid sustained demand pressure on fixed income assets,” said analysts at Lagos based Cowry Asset Management Company Limited.
Cost of funds to rise further
Meanwhile, the FGN bond offer is expected to trigger further rise in cost of funds in the interbank money market this week.
Last week, cost of funds rose in response to outflow for funding of foreign exchange wholesale auctions and foreign exchange swaps by the Central Bank of Nigeria as well as rollover of N17.61 billion worth of treasury bills (TBs) that matured during the week. The outflows suppressed the impact of inflow of N89 billion from matured secondary market (Open Market Operation, OMO) TBs, prompting average short term interest rate to rise by 346 bpts.
Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) rose by 342 bpts to 8.71 percent last week from 5.29 percent the previous week. Similarly, interest rate on Overnight lending rose by 350 bpts to 9.21 percent last week from 5.71 percent the previous week.
Analysts at Lagos based Vetiva Capital Management Company projected that the apex bank might sell OMO bills today leading to further rise in cost of funds. “With the current level of system liquidity, we foresee an OMO auction in Monday’s session, leading to a negative close in the secondary market at the start of the week”, they said.
External reserves record first weekly decline in three months
The nation’s external reserves last week record the first weekly decline in three months.
Buoyed by increased foreign exchange earnings courtesy high crude oil price and influx of dollars from foreign portfolio investors, the nation’s reserves have been on the upward trend since February 28th, 2019, when it stood at $41.296 billion. This trend was however halted on June 10 when the reserves peaked at $45.175 billion.
Last week, the reserves recorded its first weekly decline of $76 million as it fell to $45.087 billion on Thursday June 20th, 2019 from $45.163 billion on Thursday June 13th, previous week.
Meanwhile the naira appreciated marginally by 2 kobo at the Investors and Exporters (I&E) window last week. Data from FMDQ showed that the indicative exchange rate for the window dropped marginally to N360.49 per dollar last week from N360.51 per dollar the previous week. On its part, the CBN sustained its weekly injection of $210 million to support activities in the interbank foreign exchange market.