September 19, 2022/Coronation Research

Summary

• Opening market liquidity was reported at N262.4 bn on Friday (16 September ‘22). Overnight and repo rates closed within a range of 7–11%. This week, we expect rates in the money market to trend upwards, as an estimated outflow of N225bn from FGN’s bond auction (scheduled to hold today) and a potential CRR debit on Friday, to outweighs the estimated inflow of N134.6bn from FGN bond coupon payment scheduled for today.
• The average NTB yield declined by -7bps w/w to close at 7.6%. At the latest primary market NTB auction held last week Wednesday, the CBN offered and allotted N159.6bn worth of NTBs to market participants. Stop rate remained unchanged for one of the three tenors; 91-day: 5.50%, 182-day: 6.0% (previously 5.85%), 364-day: 9.75% (previously 10%). Meanwhile, the average yield for OMO bills declined by -21bps w/w to close at 10.6%. At the OMO auction held on Thursday, the CBN offered and allotted N20bn worth of OMO bills to market participants and maintained stop rates across the three tenors (103-day: 7.0%, 180-day: 8.5%, and 365-day: 10.1%).
• As for the secondary market for FGN bonds, the average yield declined by -24bps to close at 12.7% w/w. We note that there was buying interest at the shorter end of the curve. The DMO is scheduled to hold its monthly FGN bond auction today (19 September). At the auction, the DMO is expected to offer instruments worth N221-240bn through re-openings of the 13.53% FGN MAR 2025, 12.50% FGN APR 2032 and 16.24% FGN APR 2037 bonds. Given that liquidity has improved when we compare it to August, we could see increased buying interest from investors. Meanwhile, in the Eurobond market, the average yield increased by +36bps to close at 12.6% w/w. 
• According to the US Bureau of Labor Statistics, headline inflation moderated to 8.3% y/y in August ’22, compared with 8.5% y/y recorded in July ’22. The moderation can be partly attributed to a decline in energy prices. This decline was evident in gasoline costs (25.6% y/y) and fuel oil (68.8% y/y). However, inflationary pressure persisted in natural gas (33% y/y), electricity (15.8% y/y), food (11.4% y/y), shelter (6.2% y/y), used cars and trucks (67.8% y/y). 

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