Naira Appreciates at Investors Window amidst Oil Rally
In the just concluded week, the Nigerian local currency, Naira appreciates at Investors and exporters window as oil price maintain upward trend.
Following trend, Afrinvest noted in a report that the Central Bank of Nigeria (CBN) continued its weekly interventions to support Naira in the FX market.
As such, the CBN injected $100.0m via the Secondary Market Intervention Sales (SMIS) Wholesale Window with the aim of maintaining stability across the different segments of the market.
On the domestic front, external reserves declined by 0.7% ($249.1m) to $34.7 billion n from $34.9 billion in the prior week.
Last week, the price of Brent crude oil soared above $70.0 per barrel (bbl) on Monday, supported by OPEC+ decision to keep supply limited, and recently, reports of attacks on Saudi Arabian facilities.
However, at the close of the week, Brent crude oil price traded flat at $69.39/bbl.
In the foreign exchange market, the CBN spot rate traded flat all week to close at ₦379.00/$1.00. At the parallel market, rates opened at ₦482.00/$1.00 and closed ₦485.00/$1.00, depreciating ₦5.00kobo week on week.
At the Investors’ & Exporters’ (I&E) Window, the Nigerian Autonomous Foreign Exchange (NAFEX) rate opened at ₦411.64/$1.00 and closed at ₦410.00/$1.00 on Friday, appreciating ₦1.00kobo week on week from ₦411.00/$1.00.
Activity level in I&E Window rose 105.6% to $455.5m from $221.5m recorded in the previous week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira settled at $6.2bn, up $60.0m (+1.0%) from $6.1bn in the prior week.
The JUL 2021 instrument at contract price of ₦425.08 received the most buying interest in the week with an additional subscription of $7.3 million which took total value to $220.0 million.
On the other hand, the SEP 2021 instrument at contract price of ₦428.08 was the least subscribed, with an additional subscription of $3.0 million for a total value of $228.2 million.
“We expect rates to continue to trade within a tight band across different segments of the market as we remain confident of the CBN’s ability to ensure system liquidity by sustaining the weekly FX interventions”, Afrinvest said.
Money Market: Rates in the Secondary Market Rise
The interbank rates – OBB and OVN – opened the week lower at 11.5% and 11.8% respectively from the close of 15.3% and 16.3% in the prior week despite system liquidity falling to ₦157.9 billion from ₦743.5 billion.
By the end of the week, analysts at Afrinvest said the rates closed at 13.3% and 14.2% given a further decline in system liquidity to ₦126.2 billion.
It was also noted that the CBN conducted T-bills sales worth ₦88.9 billion on Wednesday across the 91, 182 and 364-day instruments.
Demand for the 91 and 182-day instruments was strong with bid-to-cover ratios of 4.2x and 3.8x respectively while the 364-day instrument recorded a bid-to-cover ratio of 1.8x.
The marginal rate for the longer-dated instrument inched higher to 6.5% from 5.5% at the previous auction while rates for the 91-day and 182-day closed at 3.5% and 5.5% (same as in the previous auction).
On Thursday, following the inflow from OMO maturities worth ₦50.0 billion, the CBN conducted an OMO auction worth ₦60.0 billion to mop-up liquidity in the system.
Demand at the auction was robust as the 96-day, 180-day and 362-day instruments were oversubscribed at bid-to-cover ratios of 3.7x, 4.1x and 6.5x at marginal rates of 7.0%, 8.5% and 10.1% respectively, same as the previous auction.
In the secondary market, performance was bearish as average yield across benchmark tenors surged 119bps week on wee to close at 2.9%.
The long-term instrument recorded the most sell-offs as yield rose 2.1% to 4.2%. The mid-term also recorded losses as yield rose 1.7% to 3.6% while the short-term instruments gained with yield down 25bps week on week to 0.9%.
Analysts at Afrinvest anticipate inflows from maturing OMO instruments worth ₦143.4bn to shape the movement of rates.
However, we expect CBN to keep rates and system liquidity in check through regular auctions.
Bonds Market Sustained Bullish Momentum
Performance in the secondary market was positive this week as average yield declined 9bps w/w to 9.2%.
Across tenors, the mid and long-term bonds recorded gains as yields moderated by 27bps and 4bps w/w respectively.
Conversely, the short-tenor instruments saw sell-offs as average yields rose 11bps week on week.
Across the SSA Eurobond market, we saw a bearish performance as average yield rose 24bps week on week to 8.4%. The Ghanaian 2022 instrument recorded the highest sell-offs with yields up 3.3%.
On the other hand, the Zambian instruments recorded gains as yields on the 2022 and 2024 instruments declined 1.7% and 0.9% w/w respectively.
For the African Corporate Eurobonds that under our radar, bearish performance was sustained as average yield rose 6bps week on week to 4.6%.
Afrinvest explained that EBN FINANCE 2026 and OFFICE CHERIFIEN 2044 instruments were the top losers as yields rose 24bps and 22bps last week compare to previous week position.
On the flip side, SEPLAT and GROWTHPOINT 2023 instruments gained week on week as yields declined 25bps and 17bps respectively.
In the domestic market, as investors await the March bond auction, analysts said they are expecting a muted performance due to low system liquidity.
“For the Eurobonds market, we believe yields on Eurobonds instruments still remain attractive for investors”, Afrinvest said.
Naira Appreciates at Investors Window amidst Oil Rally