SAT, 07 NOV, 2020-theGBJournal- Nigeria’s FX reserves decreased by USD36.05 million w/w to USD35.65 billion as outflows for CBN’s interventions across the various FX windows pressured the reserves. Across the windows, the naira closed flat against the US dollar at NGN386.00 at the I&E window (YTD: -5.6%), while it weakened by 0.4% to NGN464.00/USD in the parallel market (YTD: -22.0%).
In the Forwards market, the naira weakened in the 3-month (-0.2% to NGN387.37/USD) contract, strengthened in the 1-year (+0.8% to NGN389.81/USD) contract, and remained flat in the 1-month (NGN386.35/USD) and 6-month (NGN388.41/USD) contracts.
Cordros Research expects CBN’s FX management strategies to continue supporting the naira at its current level at the official and I&E windows.
‘’However, we believe the parallel market rate will remain volatile and continue to trade above the CBN’s Relative Purchasing Power Parity (RPPP) of NGN433.64/USD and our REER fair value estimate of NGN453.67/USD at the current level of intervention in the FX market.’’
The Treasury bonds secondary market continued to trade with bullish sentiments, as the buoyant liquidity in the system drove sentiments. We note that through the week, the market remained bid with persistent demand and no sufficient offers. Consequently, the average yield across instruments contracted by 15bps to 3.9%.
Across the benchmark curve, duration apathy continues to drive interest in instruments on the short (-72bps) end of the curve, as investors were quite keen on MAR-2024 (-172bps) and JAN-2022 (-136bps) bonds. Further down the curve, average yield expanded at the mid (+3bps) and long (+7bps) segments, following sell-offs of the FEB-2028 (+25bps) and MAR-2050 (+18bps) bonds, respectively.
In the coming week, Cordros said they still expect the Treasury bonds secondary market to remain bullish, considering the relatively higher returns on instruments in the space.
Meanwhile, the overnight (OVN) rate closed higher this week, expanding by 515 bps w/w, to 6.4% as outflows for FX, OMO (NGN90.00 billion) auction, and CRR debits towards the end of the week offset inflows from OMO maturities (NGN224.45 billion) and FX retail refunds.
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