TUE, OCT 31 2023-theGBJournal| The local currency, the naira recovered by 21.9% to N815.32/USD at the Nigerian Autonomous Foreign Exchange Market (NAFEM), after it went down by 20.5% to N993.82/US$, the heaviest depreciation in recent memory.
Last week, the exchange rate at the NAFEM gained 2.32% to close at N789.94/US$1. Conversely, at the parallel (street) market, the Naira fell by 4.88% to close at N1,230.00/US$1.
Consequently, the gap between the NAFEM window and the parallel market widened further to 51.71%. The gross foreign exchange (FX) reserves of the Central Bank of Nigeria (CBN) also rose by 0.23% to US$33.33bn.
Recall that the Federal Government announced an expected inflow of US$10.0 billion,
confirming the statement earlier made by the Minister of Finance about an expected
inflow.
The inflow may consist of a US$3.0 billion loan from the African Export-Import Bank (Afreximbank) secured by NNPC Limited; and a US$7.0 billion proposed securitization of dividends from Nigeria Liquified Natural Gas (NLNG).
The market responded to the news positively as the Naira in both the NAFEM and parallel markets gained 5.7% and 5.4% on Friday bringing the exchange rates down from a week-high of N837.49/US$1 and N1,300.00/US$1 on Thursday.
We expect that the inflow has the potential to ease the FX liquidity crunch in the short term, while other reforms to address long-term FX challenges are put in place.
Meanwhile, the overnight lending rate expanded by 50bps to 16.5%, following the debits for the OMO auction (N400 billion).
Trading in the Treasury bills secondary market was quiet as the average yield remained at 10.9%. Across the segment, the average yield was unchanged at the short and mid segments but pared at the long (-1bp) end as players demanded the 331DTM (-1bp) bill. Elsewhere, the average yield was flat at 12.0% in the OMO segment.
The FGN bonds secondary market traded with bearish sentiments, as the average yield expanded by 37bps to 15.4%.
Across the benchmark curve, the average yield advanced at the short (+88bps), mid (+5bps) and long (+25bps) segments due to sell-offs of the MAR-2025 (+218bps), JUN-2033 (+12bps) and JAN-2042 (+82bps) bonds, respectively.
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