October 24, 2022/Coronation Research

Summary

• Opening market liquidity was reported at -N134.6bn on Friday (21 October ‘22). Overnight and repo rates closed within a range of 14% – 17%. This week, we expect rates in the money market to remain elevated as the projected net outflow outweighs expected net inflow. We expect inflow (this week) from fx refund, OMO maturity, NTB maturity and coupon payments estimated at N80bn, N30bn, N240bn and N189bn respectively. Meanwhile, projected outflow is from a potential CRR debit, fx funding forwards (c. N150bn) and c. N240bn on the back of an upcoming NTB primary market auction. 
• The average NTB yield increased by +298bps w/w to close at 10.3%. Meanwhile, the average OMO yield declined by -2bps w/w to close at 10.3%.
• As for the secondary market for FGN bonds, the average yield increased by +40bps to close at 14.1% w/w. At the last primary market FGN bond auction, the DMO offered N225bn but allotted N107.9bn worth of instruments through re-openings of 14.55% FGN Apr 2029 (14.5% previously 13.5%), 12.50% FGN Apr 2032 (15.0% previously 13.8%) and 16.25% FGN Apr 2037 (16.0% previously 14.5%). Demand in this auction was the lowest YTD (total subscription was N119.2bn). The relatively low demand largely reflects tight system liquidity amid the CBN’s contractionary monetary policy stance.
• At the Eurobond market, the average yield increased by +169bps to close at 15.6% w/w.
• According to the Office of National Statistics, UK headline inflation rose to 10.1% y/y in September ’22 compared with 9.9% y/y recorded in August ’22. This is significantly higher than the Bank of England’s target of 2%. Inflationary pressure was significant in housing and utilities (20.2% y/y) and food (14.86% y/y). Meanwhile, inflationary pressure eased slightly for transportation (10.6% y/y). We note that food and non- alcoholic beverages were the major drivers of inflation amid soaring prices for energy. 

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