May 9, 2023/Coronation Research

Summary

• Opening market liquidity was reported at N343.8bn on Friday (05 May 23). Call, overnight, and repo rates closed within a range of 5% – 12% as system liquidity improved due to inflows from an OMO maturity and an fx refund. This week, we expect rates in the money market to tighten as the projected outflow from an NTB auction as well as a potential CRR debit by the CBN would likely outweigh expected inflows from an fx refund and NTB maturity.
• The average NTB yield increased by +20bps to close at 7.5% w/w.
• As for the secondary market for FGN bonds, the average yield declined by -4bps to close at 14.1% w/w.
• In the Eurobond market, the average yield increased by +19bps to close at 13.1% w/w.
• Last week, the FOMC voted unanimously to raise the target range for the federal funds rate by +25bps to 5% – 5.25% at its May meeting. The committee disclosed that the magnitude of future rate hikes would largely depend on the impact of previous rate hikes, as well as other economic and financial developments. However, concerns around the adverse effects of further tightening on businesses and households could imply a hold stance or a modest rate hike at its next meeting.
• The European Central Bank (ECB) also raised its key policy rates by +25bps pushing borrowing costs to its highest level (since July 2008). This is following a +50bps interest rate hike in March ’23. The main refinancing rate is now at 3.75%, the marginal lending facility at 4.00% and the marginal deposit facility at 3.25%. According to the ECB, further rate hikes would be necessary to return inflation to the 2% target.

For the full Coronation fixed income and exchange rate (CFEX) update, please click here