16 April 2018

Nigeria: Market Awaits N116 Billion Maturing Treasury Bills

A total of N116.9billion treasury bills across the 91-day, 182-day and 364-day instruments will be maturing this week.

However, only N58.4billion of this amount would be rolled over in line with the federal government's debt restructuring strategy.

The federal government's debt strategy involves substituting expensive domestic short-term debt with cheaper long term foreign debt.

Afrinvest Securities Limited which disclosed this in its latest weekly report, stated that in the treasury bills market, performance was largely flattish during the week, as average rate across benchmark tenors trended higher albeit marginally on three of five trading sessions save for Tuesday.

The bearish start of the week, with average rate rising two basis points to 13.1 per cent was reversed on Tuesday following a four basis pointsdecline in average yield; but rose three basis points mid-week in the absence of a Primary Market Auction.

Rates however, stayed flattish till the end of the week and closed at 17 basis points lower by weekend.

Analysts at Afrinvest anticipated a largely bullish performance in the treasury bills market this week.

Meanwhile, money market rates during the week responded largely to financial system liquidity dynamics which recently had remained high at above N500 billion following the strategic intermittent mop-ups by theCentral Bank of Nigeria (CBN).

As with other weeks, investor appetite for open market operations (OMO) securities, especially the long-dated maturities, remained noticeable in the pattern of subscription.

The open buy back (OBB) and overnight (OVN) rates trended lower week-on-week, reflecting improvement in system liquidity which opened at N501.4 billion on Monday as OBB and OVN rates fell to 3.3 per cent and 3.5 per cent, down 0.4 percentand 0.5 percent from the previous week's close.

According to the report, the momentum was sustained till midweek as rates fell to 2.7 per cent and three per cent respectively following a dearth of OMO auctions and consequential increase in system liquidity to N623.8billion.

But on Thursday, system liquidity opened at a significantly higher level of N1.1 trillion, necessitating N500 billion OMO mop-up by the CBN across 112-day (offered: N100 billion, Subscription: N1.2 billion, Alloted: N1.2 billion, Marginal Rate: 12.2%) and 245-day (Offered: N400 bilion, Subscription: N963.9 billion, Alloted: N498.7 billion, Rate: 13.99%) maturities.

Hence, OBB and OVN rates inched 0.3 per cent and 0.5 per cent higher to three per centand 3.8 per cent respectively.

"As the impact of a moderating inflation continues to anchor yield expectation, we anticipate more subscriptions in longer tenored instruments as investors lock in higher rates ahead of yield moderation," the report stated.

Bond Market

The local bond market was bullish last week as average yield declined week-on-weekconsequent on investors' reaction to the monetary policy rate retention and a moderation in headline inflation, the report further stated.

Accordingly, the average yield across tenors fell six basis points last Monday to close at 13.6 per cent due to buying interest across tenors, specifically in short and medium dated instruments.

The downward trend in yieldwas said to have continued till mid-week as the average yield across tenors further moderated to 13.6 per cent (5basis points lower) lastTuesday and six basis points lower last Wednesday before settling at 13.5 per cent lastThursday.

However, average yield closed the week at 13.5 per cent on Friday, recording a 23 basis points declined week-on-week.

"Based on our near-term outlook, we expect the bullish performance to be sustained in the current moderating yield environment as investors retain interest in longer dated maturities," it stated.

Nonetheless, performance of Sub-Saharan Sovereign Eurobonds was largely bearish, halting the bullish sentiment in prior weeks, as 17 of 22 instruments witnessed an upward trend in yields week-on-week, while the Nigeria 2018, Ghana 2026, Ivory Coast 2028 & 2032 and South Africa2020 instruments declined week-on-week.

The bearish sentiment waslinked to the weakening US dollar (measured by the Dollar index) which has lost 2.5 per cent year-to-date in value compared to major currencies of the World.

"In view of our near term outlook, we expect the sub-Saharan Eurobonds market to rebound following the bearish performance this week as higher yields will likely sustain investor appetite for Sub-Saharan emerging and frontier Eurobonds," it added.

Forex Market

The improving global demand on the back of optimistic growth outlook, sustained OPEC production cut deal and Saudi Arabia's vow to cut more oil output, propped global oil prices during the week as Brent Crude gained 7.5% W-o-W to close at US$72.28/b. This positive development continued to strengthen the Central Bank of Nigeria (CBN's) external reserves buffer - which during the week sustained the recent momentum of accretion, with the gross level reported at US$47.3 billion - and its capacity to uphold the level of FX intervention needed to support the local currency.

Consequently, the CBN in line with trend, continued its weekly FX intervention sales, offering US$210 million via the wholesale Secondary Market Intervention Sales (SMIS); in its commitment to sustain liquidity levels and maintain stability in FX rate across all segments of the market.

As a result, the naira was stable during the week. The CBN's spot rate opened the week at N305.60/US$1 and appreciated to N305.55/US$1 on Monday but maintained this rate till the end of the week.

At the parallel market, rates started the week at N362/US$1 but marginally weakened by N1 to close at N363/US$1. At the Investors and Exporters' (I&E) Window, the NAFEX opened the week flat at N360/US$1 and closed at the same rate by week-end.

Activity level in I&E FX window improved following a 6.8 per cent increase in turnover to US$1.1 billion from US$1 billion traded in the preceding week.

In the FMDQ OTC futures, total value of open contracts of the naira settled OTC FX futures rose by US$151.9 million to US$3.4 billion as compared with US$3.3 billion posted the preceding Friday, which denotes an increase of 4.8 per cent in market size.

The April 2018 instrument will be maturing in the next two weeks and in line with previous actions by the CBN,analysts expect the instrument to be replaced by a new contract.

"In line with the trend of weekly interventions by the CBN within the FX market, we expect rates to trade within similar levels across the FX market segments," the report added

AGSMEIS Fund

The Bankers' Committee has begun the disbursement of the N26 billion fund accruing from the Agribusiness Small and Medium Enterprises Investment Scheme (AGSMEIS), an initiative designed to improve access to affordable financing for medium, small and micro enterprises (MSMEs), particularly those operating in the informal sector of the economy.

The Committee, at its 331st meeting of February 9, 2017, hadinitiated AGSMEIS with all deposit money banks, voluntarily agreeing to set aside and contribute five per cent of their profit after tax (PAT) annually to finance eligible projects under the Scheme.

Speaking at the commencement of thedisbursements to the first set of beneficiaries of AGSMEIS fund in Abuja last week, the CBNGovernor, Mr. Godwin Emefiele said: "As at today, the size of the Fund stands at about N26 billion and this is expected to exceed N60 billion by June 2018. I am therefore very delighted that we have come to this stage where we are ready to begin the disbursement of these funds to deserving beneficiaries.

"These beneficiaries are youths who have been trained on various entrepreneurship, vocational and management skills across the country by Entrepreneurship Development Institutions and Centres, such as Fate Foundation, Lagos Business School, House of Tara and Thrive Agric. Upon completion of their vocational training, the specific implements needed to practice their vocations, are procured under the scheme.

"The beneficiaries' details including their Biometric Verification Numbers (BVN) are forwarded to the deposit money banks to confirm that they are their customers before accessing the fund."

Inflation

The rate of inflation recorded its sharpest decline of 0.99 percentage points in 11 months, dropping from 14.33 per cent in February 2018 to 13.34 per cent in March, the National Bureau of Statistics (NBS) disclosed last week.

According to the NBS, the Consumer Price Index (CPI), which measures inflation, stood at 13.34 per cent (year-on-year) in March 2018, but the Composite Food Index rose by 16.08 per cent (year-on-year) during the month under review, down from 17.59 per cent recorded in February.

On a month-on-month basis, the food sub-index increased by 0.90 percent in March 2018, up by 0.05 percentage points from 0.85 per cent in February.

The average annual rate of change of the food sub-index for the 12-month period ending March 2018 over the previous 12-month average was 19.29 per cent, 0.23 per cent points from the average annual rate of change recorded in February (19.52 per cent).

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