December 30, 2022/Coronation Research

Summary

• Opening market liquidity was reported at N679.9bn on Friday (23 December ‘22). Call, overnight and repo rates closed within a range of 5% – 13%, as system liquidity tightened on the back of OMO and fx auctions. This week, we expect rates in the money market to remain elevated as the projected outflow from NTB, OMO, fx auctions, and a potential CRR debit by the CBN would likely outweigh potential inflows from NTB and OMO maturities.
• The average NTB yield declined by -283bps to close at 5.41% w/w. Meanwhile, the average OMO yield declined by -578bps w/w to close at 4.31%.
• As for the secondary market for FGN bonds, the average yield declined by -40bps to close at 13.1% w/w.
• In the Eurobond market, the average yield increased by +12bps to close at 11.8% w/w.
• According to the Office of National Statistics, UK headline inflation moderated to 10.7% y/y in November ’22 vs 11.1% y/y recorded in October ’22. This moderation can be largely attributed to a decline in transport costs (7.2% y/y), motor fuels (17.2% y/y), clothing and footwear (7.5% y/y), and recreation and culture (5.3% y/y). Meanwhile, inflationary pressures persisted in food prices (16.5% y/y) and restaurants and hotels (10.2% y/y). The headline inflation remains significantly higher than the Bank of England’s target of 2%. The BoE also raised its key interest rate by 50bps to 3.5% at its December meeting bringing borrowing costs to the highest level since 2008. The BoE disclosed that further increases in the interest rate may be required to bring inflation to target. Looking ahead, inflation is expected to remain considerably high due to high energy prices and tighter financial conditions that continue to weigh on consumer and business spending.

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