December 19, 2022/Coronation Research

Summary

• Opening market liquidity was reported at N106.9bn on Friday (16 December ‘22). Call, overnight and repo rates closed within a range of 5% – 11%, as system liquidity moderated amid FGN Bond and OMO auctions. This week, we expect rates in the money market to trend upwards as the projected outflow from an OMO, fx auctions, and a potential CRR debit by the CBN would likely outweigh potential inflows from OMO maturities and fx refund.
• The average NTB yield declined by -24bps to close at 8.2% w/w. Meanwhile, the average OMO yield declined by -2bps w/w to close at 10.1%. 
• As for the secondary market for FGN bonds, the average yield declined by -62bps to close at 13.5% w/w. At the last primary market FGN bond auction, the DMO offered N225bn but allotted N264.5bn worth of instruments through re-openings of 14.55% FGN Apr 2029 (14.6% previously 14.75%), 12.50% FGN Apr 2032 (14.75% previously 15.2%) and 16.25% FGN Apr 2037 (15.8% previously 16.2%). The improvement in participation (demand) at this bond auction primarily reflects improved system liquidity. At the Eurobond market, the average yield increased by +4bps to close at 11.7% w/w.
• According to the US Bureau of Labor Statistics, headline inflation moderated to 7.1% y/y in November ’22 compared with 7.7% y/y recorded in October ’22. This is the fifth consecutive moderation in headline inflation. This moderation can be largely attributed to a decline in energy and food prices, which was evident in gasoline (10.1% y/y), electricity (13.7% y/y), and food (10.6% y/y). Meanwhile, inflationary pressure persisted in the cost of shelter (7.1% y/y).
• Last week, the FOMC voted unanimously to raise its key policy rate by 50bps to 4.25-4.5% at its December meeting. This is the seventh consecutive rate hike, bringing borrowing costs to the highest level since 2007. The Fed Chair disclosed that further increases in the target range will be appropriate to bring inflation down to 2%, after assessing the impact of the previous rate hikes as well as other economic and financial developments.