Bond prices to rise as N465bn inflow boosts interbank market

Naira appreciates as CBN injects $478.4m

By Babajide Komolafe


The bullish trend witnessed in  the over-the-counter (OTC)  market for FGN bonds at the close of last week’s trading is expected to continue this week with further increase in prices.

The bullish trend would be  buoyed by improvement in financial market liquidity courtesy inflow of N464.76 billion from maturing treasury bills.

Last week, the N150 billion worth of FGN bonds offered by the Debt Management Office (DMO) was oversubscribed by  156 percent    with total subscription of N234 billion.

Consequently,    the DMO sold    the total offer amount of    N150 billion, comprising    12.75% FGN APR 2023 (5-Yr Re-opening) worth N1.50 billion, 13.53% FGN MAR 2025 (7-Yr Re-opening) worth N12.25 billion and 13.98% FGN FEB 2028 (10-Yr Re-opening) worth N136.25 billion respectively. However, the 5-year, 7-year and 10-year bonds were auctioned at lower stop rates of 14.52 percent,      14.80 percent and 14.94 percent down from 15.20 percent, 15.25 percent, from 15.30 percent respectively        in the previous offer.

The lower rates offered by the DMO triggered demand for FGN bonds at the (OTC) market, prompting prices to rise.

The 5-year, 14.50% FGN JUL 2021 paper and the 7-year, 13.53% FGN MAR 2025 note appreciated by N0.01 and N0.12; while their corresponding yields fell to 15.15 percent and 14.65 percent from 15.16 percent and    14.68 percent    respectively; however, 10-year, 16.29% FGN MAR 2027 debt depreciated by N0.29 and its yield rose to 14.73 percent from 14.67 percent.

According to analysts at Lagos based Cowry Assets Management Limited, the general increase in the value of FGN bonds    at the OTC is expected to persist this week. “In the new week, we expect FGN bond prices to increase with corresponding fall in yields at the OTC market amid expected ease in financial system liquidity”, they said.

Making similar projection, analysts at Zedcrest Capital Limited said,    “The bond market traded on a bullish note, as market players continued to pick on offers.    We expect this bullish trend to be sustained barring any significant upheavals at the forthcoming elections.”

N464bn inflow to boost interbank liquidity

The interbank money market will this week receive liquidity boost of N464.76 billion from maturing treasury bills (TBs) with likely moderation in cost of funds.

Cost of funds trended upward last week following outflow of N838 billion through secondary and primary market TB auctions conducted by the Central Bank of Nigeria (CBN)

The inflow of N1.2 trillion comprising N578.99 billion worth of matured TBs, N649 billion statutory allocation funds and N49 billion    from    bond coupon payment, triggered oversubscription of the secondary market (Open Market Operations, OMO) TB auction held by the CBN on Thursday. The apex bank offered N650 billion while total subscription stood at N786 billion. This outflow in addition to the N150 billion outflow via FGN bond auction prompted average short term cost of funds to rise by 2.88 basis points (bpts).

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 300    bpts to 18.83 percent on Friday from 15.83 percent the previous week. Similarly, interest rate on Overnight lending rose by 275 bpts to 20.25 percent from 17.5 percent the previous week.

Analysts opined that the moderation in cost of funds will persist this week as    the inflow of N464.76 billion from maturing TBs  is expected to offset    the impact of N115.12 billion outflow through primary market (fresh) TBs to be sold this week, while the CBN is expected to reduce the    pace of liquidity mop up efforts.

“In the new week, T-bills worth N464.76 billion will mature via the primary and secondary markets which will more than offset T-bills worth N115.12 billion to be auctioned by CBN via the primary market. Hence, we expect liquidity ease in the financial system to be sustained with resultant moderation in interbank rates”, said analysts at Cowry Assets management Limited.

Naira appreciates as CBN injects $478.4m

The naira appreciated in the Investors and Exporters (I&E) window last week even as the CBN injected $478.4 million into the interbank foreign exchange market.

Data from FMDQ showed that the I&E indicative exchange rate dropped to N361.49 per dollar last week from N361.65 per dollar the previous week, translating to 14 kobo appreciation for the naira.

The naira however remained stable at N359 per dollar in the parallel market.

In a bid to ensure liquidity in the foreign exchange market, the CBN increased its weekly injection into the interbank foreign exchange market to $478.4 million last week.

In addition to the weekly injection of $210 million on Tuesday, the CBN injected $268.4 million on Friday as well as  CNY 46.3 million.

Announcing the additional injection, Director, Corporate Communications Department, CBN, Mr. Isaac Okorafor, said: “The Central Bank of Nigeria (CBN) on Friday, February 22, 2019, made an intervention of $268.4million in the retail Secondary Market Intervention Sales (SMIS) and CNY 46.3million in the spot and short  tenored  forwards segment of the inter-bank foreign market.”

He added that the intervention was for requests in the agricultural and raw materials sectors while the Chinese Yuan, on the other hand, was for Renminbi denominated Letters of Credit.

Okorafor further expressed satisfaction over the stability in the foreign exchange  market  which  according to him, was largely due to sustained intervention by the Bank. He assured that the  apex bank  would remain committed to ensuring that all the sectors of the forex market continue to enjoy access to the needed foreign exchange.

Source:https://samueljackson12.blogspot.com/2019/02/bond-prices-to-rise-as-n465bn-inflow.html