Funding Rates Spike to 7-Month High as Banks Fund for their Retail FX Bids
Nigeria’s Capital Importation grows by 594% in Q1 2018 – NBS
 KEY INDICATORS
| 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 on 4 April 2018 |
| External Reserves | $47.86billion | Accreted 1.52% as at 10 May from $47.85bn as at 9 May 2018 |
| Brent Crude | $77.27pb | Rose by0.80% from $76.65pb on 9 May 2018 |
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Bonds
The bond market closed the week on a weaker note, with yields rising further by c.10bps on average. This was due to the strong liquidity pressures in the System which constrained buying interests in the market.
We expect the market to remain slightly depressed in the coming week, as the forecast for liquidity remains gloomy, even as market players have begun to reassess their strategies in reaction to the recent hawkish stance on liquidity and interest rates (OMO) by the CBN.
| FGN Bonds | |||
| Description | Bid (%) | Offer (%) | Day Change (%) |
| 16.00 29-Jun-19 | 12.05 | 10.64 | 0.23 |
| 15.54 13-Feb-20 | 13.13 | 12.18 | 0.06 |
| 14.50 15-Jul-21 | 13.56 | 13.41 | 0.02 |
| 16.39 27-Jan-22 | 13.52 | 13.32 | 0.07 |
| 14.20 14-Mar-24 | 13.43 | 13.18 | 0.17 |
| 12.50 22-Jan-26 | 13.47 | 13.27 | 0.13 |
| 16.29 17-Mar-27 | 13.41 | 13.36 | 0.07 |
| 12.15 18-Jul-34 | 13.44 | 13.28 | 0.09 |
| 12.40 18-Mar-36 | 13.34 | 13.22 | 0.09 |
| 16.25 18-Apr-37 | 13.26 | 13.20 | 0.08 |
Source: Zedcrest Dealing Desk
Treasury Bills
The T-bills market turned significantly bearish upon the announcement of a Retail SMIS by the CBN. The retail announcement caused a significant squeeze in system liquidity and an uptick in yields by c.75bps, as some Banks were forced to sell off their positions, mostly on the short and medium end of the curve, in a bid to generate liquidity to fund for their bids.
We expect this weakness to persist as system liquidity is expected to remain depressed in the near term.
| Treasury Bills | |||
| Description | Bid (%) | Offer (%) | Day Change (%) |
| 14-Jun-18 | 13.50 | 12.50 | 0.90 |
| 5-Jul-18 | 14.00 | 13.00 | 1.00 |
| 2-Aug-18 | 13.50 | 12.50 | 1.20 |
| 13-Sep-18 | 13.00 | 12.25 | 1.00 |
| 4-Oct-18 | 13.00 | 11.50 | 1.00 |
| 1-Nov-18 | 13.50 | 12.50 | 1.00 |
| 6-Dec-18 | 12.75 | 12.00 | 0.55 |
| 3-Jan-19 | 13.00 | 12.00 | 0.85 |
| 14-Feb-19 | 12.50 | 12.00 | 0.20 |
| 14-Mar-19 | 12.50 | 11.00 | 0.30 |
| 4-Apr-19 | 12.50 | 11.00 | 0.35 |
Source: Zedcrest Dealing Desk
Money Market
The OBB and OVN rates shot to a 7-Month high of 65.00% and 73.42% as the CBN intervened in the FX market via a retail SMIS, consequently taking system liquidity significantly lower into an estimated net negative position of c.N100bn.
We expect rates to remain elevated as the CBN is expected to conduct another Wholesale FX SMIS on Monday.
| Money Market Rates | ||
| Â | Current (%) | Previous (%) |
| Open Buy Back (OBB) | 65.00 | 16.67 |
| Overnight (O/N) | 73.42 | 18.88 |
Source: FMDQ, Zedcrest Research
FX Market
The Interbank rate depreciated by 0.02% to N305.80/$ from its previous rate of N305.75/$. This was following a retail secondary market intervention sale by the CBN. The NAFEX rate appreciated by 0.09% to N361.05/$, while the total volume traded dropped further by 31% to $126m. Rates in the Unofficial market, however, remained stable at N361.50/$.
| Â
FX Rates |
||
| Â | Current (N/$) | Previous ( N/$) |
| CBN Spot | 305.80 | 305.75 |
| CBN SMIS | 330.00 | 330.00 |
| I&E FX Window | 361.05 | 361.36 |
| Parallel Market | 361.50 | 361.50 |
Source: CBN, FMDQ, REXEL BDC
Eurobonds:
Investors remained bullish on the NIGERIA Sovereigns, with yields compressing further by c.13bps across the curve. The 38s and 47s remained favorites, gaining as much as +0.80pt, with the 47s now trading close to par.
The NIGERIA Corps were also slightly bullish, with the FBNL 21s and UBANL 22s leading the charts with marginal gains of +0.20pt and +0.30pt respectively.
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