March 21, 2023/Coronation Research

Summary

• Opening market liquidity was reported at N236.4m on Friday (17 March 23). Call, overnight and repo rates closed within a range of 12% – 14%, as system liquidity tightened on the back of outflows from an NTB, OMO, and fx auctions. This week, we expect rates in the money market to remain elevated as the projected outflow from an FGN Bond auction as well as a potential CRR debit by the CBN would likely outweigh inflows from an fx refund and FGN coupon payment.
• The average NTB yield increased by +173bps to close at 5.4% w/w. At the latest primary market NTB auction held last week Wednesday, the CBN offered and allotted N161.8bn worth of NTBs to market participants. The stop rates changed across the three tenors; 91-day: 2.55% (previously 1.44%), 182-day: 5.00% (previously 6.00%), 364-day: 9.49% (previously 10.00%). Meanwhile, OMO yield remained unchanged at 3.0% w/w.
• As for the secondary market for FGN bonds, the average yield increased by +21bps to close at 13.3% w/w. 
• In the Eurobond market, the average yield increased by +115bps to close at 13.7% w/w. 
• According to the US Bureau of Labor Statistics, headline inflation moderated to 6.0% y/y in February ’23 vs 6.4% recorded in January ’23. This marks the lowest headline reading since September ’21. The moderation was evident in energy (5.2% y/y), fuel oil (9.2% y/y), and food prices (9.5% y/y). Meanwhile, inflationary pressure was persistent in the cost of shelter (8.1%) and electricity (12.9% y/y). 
• Last week, the ECB raised its key policy rates by 50bps pushing borrowing costs to its highest level since 2008. This is following a similar 50bps interest rate hike in February ’23. The main refinancing rate is now at 3.50%, the marginal lending facility at 3.75% and the marginal deposit facility at 3.00%. According to the ECB, further rate hikes would be necessary to tame persistent inflation.

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