SAT, 03 OCT, 2020-theGBJournal-Nigeria’s FX reserves declined by USD22.00 million w/w to USD35.72 billion, as FX outflows outpaced inflows. Across the FX windows, the naira strengthened against the US dollar by 0.1% and 0.4% to NGN386.00/USD and NGN465.00/USD, at the I&E window and parallel market, respectively.
In the Forwards market, the naira depreciated at the 3-month (-0.1% to NGN387.91/USD) and 6-month (-0.3% to NGN390.80/USD) contracts, while it was flat at the 1-month (NGN386.49/USD) and 1-year (NGN399.58/USD) contracts.
Despite the CBN’s stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further in the medium-to-long term, at least towards its REER derived fair value.
The forecast is hinged on the widening current account position, currency mispricing, which could induce speculative attacks on the naira, and the resumption of FX sales to the BDC segment of the market which should place an additional layer of pressure on the reserves.
Money market and Fixed income
The overnight (OVN) rate contracted by 9.92ppts to 1.6%, following inflows to the system from FGN bond coupon payments (NGN45.45 billion) and OMO maturities (NGN140.00 billion).
In the coming week, we expect the OVN rate to remain depressed, as system liquidity is supported by inflows from OMO maturities (NGN567.69 billion).
Treasury bills
Trading in the Treasury bills secondary market was bearish, on the back of reduction in system liquidity, sell-offs in both market segments and market participants at the NTB segment focusing on the primary market. Consequently, the average yield across all instruments expanded by 13bps to 1.9%. Across the segments, the average yield expanded by 9bps and 19bps to 1.9% and 1.9%, at the OMO and NTB secondary markets, respectively. At the NTB PMA, the CBN rolled over NGN133.97 billion worth of instruments, with allotments of NGN10.0 billion of the 91-day, NGN17.60 billion of the 182-day and NGN106.37 billion of the 364-day – at respective stop rates of 1.08% (previously 1.09%), 1.49% (previously 1.50%), and 2.80% (previously 3.05%).
Next week, we see sustained investors’ apathy for yields at current levels. Nonetheless, we expect improved trading volumes in the market, on the back of expected inflows to the system.
Bonds
The Treasury bonds secondary market ended the week bullish, as investors re-invested coupon payments and maturities. Thus, the average yield across instruments contracted by 24bps to 6.8%. Across the benchmark curve, demand was heavy at the short (-47bps) and mid (-40bps) segments, as investors bought up the JAN-2022 (-132bps) and JUL-2030 (-114bps) bonds, respectively. Conversely, sell-off of the JUL-2034 (+51bps) bond, caused the expansion witnessed at the long (+12bps) end.
We expect trading in the Treasury bonds secondary market to remain in bullish, as a significant portion of expected maturities is re-invested in the bonds market.
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