Funding Rates Spike as CBN Mops up System Liquidity with c.N454bn OMO Sale
We won’t be complacent on oil price rise, Adeosun tells W/Bank
|Inflation||13.34%||Declined by 0.99% in March from 14.33% in February 2018|
|MPR||14.00%||Left unchanged at 14.00% at the MPC meeting 0n 4 April 2018|
|External Reserves||$47.85billion||Accreted 1.52% as at 9 May from $47.83bn as at 8 May 2018|
|Brent Crude||$76.65pb||Fell by 0.25% from $76.84pb on 9 May 2018|
The bond market witnessed slight pullback in yields following a slowdown in offshore profit taking and renewed buying interest from local clients. Yields consequently compressed by c.7bps on average.
We, however, note that yields rose slightly from their intra-day lows following release of the OMO auction result in which all subscriptions were filled by the CBN. We expect the market to close the week on a slightly weaker note, as most buying interests would be constrained by the tight system liquidity and the relatively higher yields in the T-bills space.
|Description||Bid (%)||Offer (%)||Day Change (%)|
Source: Zedcrest Dealing Desk
The T-bills market turned significantly bearish, with yields rising higher by c.40bps across the curve. This came as market players repriced their quotes following the significant OMO sale (c.N454bn) by the CBN at a 5bps higher rate on both maturities.
We expect the market to remain significantly bearish tomorrow, due to the tight system liquidity and expected outflows for retail FX funding by banks.
|Description||Bid (%)||Offer (%)||Day Change (%)|
Source: Zedcrest Dealing Desk
|OMO Auction Result|
|Tenor||Rate (%)||Offer (NBn)||Sub (N’bn)||Sale (N’bn)|
The OBB and OVN rose significantly higher to 16.67% and 18.88% respectively. This came on the back of the significant OMO sale by the CBN, which is estimated to take system liquidity to a net negative position for the first time since on the 6th of December 2017.
We expect rates to remain elevated tomorrow, as banks look to fund for their retail FX bids, which is estimated to result in a net outflow of funds despite expected refunds from the previous retail FX sales.
|Money Market Rates|
|Current (%)||Previous (%)|
|Open Buy Back (OBB)||16.67||7.08|
Source: FMDQ, Zedcrest Research
The Interbank rate remained stable at its previous rate of N305.75/$, with the CBN’s external reserves recorded to have improved by 1.52% to $47.85bn as at 9-May. The NAFEX rate depreciated further by 0.14% to N361.36/$, while rates in the Unofficial market remained stable at N361.50/$.
|Current (N/$)||Previous ( N/$)|
|I&E FX Window||361.36||361.14|
Source: CBN, FMDQ, REXEL BDC
The NGERIA Sovereigns recovered significantly from the intense bearish pressures witnessed in previous sessions. This was following renewed investor demand especially on the 27s, 38s and 47s which gained as much as +2.00pt. Yields consequently compressed by c.16bps across the curve.
The NGERIA Corps also posted significant recoveries across almost all traded tickers, with the exception of the ZENITH 22s which remained slightly bearish. The FBNNL 21s, FIDBAN 22s and SEPLLN 23s were the top gainers, with gains of +0.27pt, +0.55pt and +0.75pt respectively.
Some experts are uncertain of what to expect from money markets in H2 2020
In the meantime, liquidity in the Nigerian banking system is said to be below N100 billion
Money market experts are uncertain over what to expect as the second half of the year takes off. This uncertainty is specifically hovering over the treasury bills and OMO (Open Market Operations) side of the market, according to Constance Onyia, a Fixed Income Dealer with Access Bank Plc.
Speaking to CBN Africa, yesterday, about what is happening in the money markets and what to expect during the second half of the year, Onyia said the CBN’s changing strategy has made it difficult to be predictive.
“Actually, we are expecting OMO auction tomorrow. But being that CBN’s strategy has changed (in the last two months they’ve not been rolling over all the maturities and sometimes they don’t even come for OMO), we don’t know what to expect; if there will be OMO auction tomorrow or not. And even if there’s an auction, they might no rollover everything on offer. So, we see that the strategy has changed a bit and we don’t know what to expect for the month or for the second quarter,” she said.
Meanwhile, when the Head of Fixed Income Trading at United Bank for Africa (UBA) Plc, Bankole Odusanya, was asked the same question, he said “the Debt Management Office has a calendar and what is on play is simply that the exact amount that is maturing is what they plan to offer. If we saw that they increased the amount they wanted to offer, then you could be tinkering with your pricing. So, the amount that is maturing by-weekly (on Thursdays) is what they plan to raise.”
In the meantime, liquidity in the Nigerian banking system is said to be below N100 billion. And because this liquidity level is not excessive, experts do not expect the CBN to come in heavily with OMO maturities. As Odusanya pointed out, the amount of OMO bills by the CBN has reduced significantly over the last few weeks, even as the apex bank now relies more on Cash Reserve Ratio (CRR) to control liquidity.
Nigerian Treasury Bills plunge to 3.39% per annum
The CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available.
The latest data from the Treasury bill auctions concluded recently shows that Nigeria’s 364-day tenor fell to 3.39%. On the other hand, Stop rates printed lower for the 91-day tenor at 1.789% and 182-day tenor, which went for 1.91%.
At the Treasury bill auction, the Debt Management Office sold N10 billion on the 91-day paper, N20 billion on the 182-day, and N58.857 billion on the 364-day bills.
Ladi Belo a treasury analyst at a Nigerian tier-1 bank told Nairametrics in a phone chat interview, commenting on the latest treasury bill auction. He said;
“At the NTB auction that was conducted yesterday, we witnessed significant demand, especially on the new 1-Yr bill. This is still because of the exclusion of local corporates and retail investors from investing in Omo bills. As a result, the stop rates across board closed lower than the preceding auction at 1.789%, 1.91%, and 3.39% on the short, medium, and long-tenures papers, respectively. I expect these rates to go down further in the secondary market as market players try and fill their unmet demand.”
Quick facts: The massive disparity between the subscriptions and the offers recorded suggests investors are willing to earn a negative real return, compared to the higher risk in other assets such as stocks and real estate.
Basically, the CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available. Interests are paid upfront, with the principal paid in full upon maturity.
Understanding Treasury Bills: Basically, when the government goes to the financial market to raise money, it can do it by issuing two types of debt instruments – treasury bills and government bonds.
Treasury bills are issued when the government needs money for a short period, while bonds are issued when it needs debt for more than, say five years. The issuance of treasury bills is also used as a mechanism to control the circulation of funds in the economy.
Treasury bills have a face value of a certain amount, which is what they are actually worth. However, they are sold for less. For example, a bill may be worth N10,000, but you would buy it for N9,600. Every bill has a specified maturity date, which is when you receive the money back.
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The government then pays you the full price of the bill (in this case N10,000), giving you the opportunity to earn N400 from your investment. The amount that you earn is considered as the interest, or your payment for lending your money to the government. The difference between the value of the bill and the amount you pay for it is called the discount rate and is set as a percentage.
Telegram agrees to settle with SEC over $1.7 billion ‘unlawful’ digital coins
Telegram now has 30 days to pay SEC’s penalty and up to four years to pay back investors.
The world’s top social messaging app, Telegram has agreed to settle with the U.S. Securities and Exchange Commission (SEC) amounting to $18.5 million over its $1.7 billion “unlawful” token sale.
As part of the agreement, Telegram must also inform the SEC should it choose to issue another digital coin within the next three years.
The settlement between Telegram and the U.S. SEC effectively ends the months-long legal battle between the two parties, which began when the SEC sued Telegram back in Oct. 2019
Telegram now has “30 days to pay SEC’s penalty and up to four years to pay back investors.”
Why it matters: Telegram has already stopped the TON project. Therefore, the settlement will not have an immediate effect on Telegram’s futuristic projects. While the official TON chain is inactive, community developers and validators launched a fork of TON (called Free TON) last month.
As we’ve previously covered, this case and settlement could have more significant implications for other SAFT raises, especially for those projects that have yet to launch.
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