Culled—Proshare

June 1, 2020

By Anchoria AM Research

Money Market

The average money market rate fell significantly last week by 12.72% to settle at 2.60% from 15.32% in the previous week. This is attributable to the inflow from FGN Bond coupon payments worth N5.63 billion and OMO maturities worth N319.72 billion.

Other outflows for the week included: FX wholesale SMIS of $210mn

Also, at the Monetary Policy Committee (MPC) meeting last week, the Central Bank of Nigeria surprisingly reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50% while other parameters such as the Cash Reserve Ratio (CRR) remained at 27.50% and Liquidity Ratio at 30.00%. As part of the CBN’s monetary and fiscal policy measures to curb the effect of the pandemic on the economy, the bank reduced the interest rates on the CBN intervention facilities from 9% to 5% per annum from 1-year effective March 1, 2020.

We expect the system liquidity to be buoyant with OMO maturities worth N155.78 billion expected during the week. Also we expect increase activities in CBN Lending window this week.

Forex: USD/NGN

Nigeria’s external reserve have sustained its continuous increase as the reserve rose by 1.76% to close at $36.50 billion. Despite, the recent gradual increase of the external reserve, the rate at the I&E Fx window last week depreciated by 10bps to close at N386.33/$. The CBN official rate remained stable at N361.00/$. We saw a reduced demand pressure at the parallel market last week as the rate strengthen to N451/$

We expect pressure in the foreign exchange market to reduce as crude oil price improves and the country’s external reserve increases.

Bond: FGN

The secondary sovereign Bond market closed bullish last week as the average yield fell by 30bps to close at 10.11% compared to 10.40% in the previous week. Yields declined across all instruments except the MAR-2024 bond which increased by 6bps to close at 8.96% while the largest yield decline of 115bps was witnessed in the MAR-2025.

The Sovereign Eurobond market closed on a bullish note as the average yield fell by 4bps to close at 8.73% compared to 8.77% the previous week. The Corporate Eurobond market also closed bullish as the average yield fell by 36bps to close at 11.54% compared to 11.90% the previous week.            

We expect increased interest in both domestic bond and Eurobond as the Oil price continued to sustain above the $30 per barrel price and as rate at the money market continued to remain low.

Treasury Bills

The T-bills secondary market closed on a bullish note last week as the average yield fell by 5bps to close at 2.12% compared to 2.17% the previous week. In the same vein, OMO bills fell by 2bps to close at 6.05% compared to 6.07% the previous week.

At the Treasury bills auction held last week, the CBN fully allotted N59.37 billion worth of bills – N20.37 billion – 91-day, N19.16 billion – 182-day and N19.84 billion – 364-day – at respective stop rates of 2.45% (previously 2.50%), 2.72% (previously 2.85%), and 4.02% (previously 3.84%). (See next page for T-bills result).

Commodities

WTI crude oil spiked by 6.74%, notching its best monthly performance gain on record. The surge in oil prices comes just one month after oil prices went negative for a brief period of time, as demand for oil plummeted amid the economic shutdown caused by the COVID-19 pandemic. In the same vein, Brent oil rose by 0.57% to close at $35.33 compared to $35.13 the previous week.