December 18, 2023/Coronation Research

Summary

• Opening market liquidity was reported at N208.5bn on Friday (15 December ‘23). Call, overnight, and repo rates closed within a range of 9% – 24% as rates in the money market tightened. Our expectation in the current week is that money market rates moderate as the projected inflow from FGN bond coupon payments would likely outweigh the outflow from potential CRR debits.
• Last week, the average NTB yield declined by -130bps to close at 8.3% w/w. At the latest primary market NTB auction held last week Wednesday, the CBN offered N13.6bn but allotted N263.6bn worth of NTBs to market participants. The stop rates declined across the three tenors; 91-day: 6.25% (previously 9.00%), 182-day: 11.00% (previously 13.00%), 364-day: 13.50% (previously 15.75% y/y). The demand at this auction primarily reflects improved system liquidity and end-year rebalancing/portfolio build-up by fund managers.
• The average yield for OMO bills declined by -170bps to close at 12.9% w/w.
• In the secondary market for FGN bonds, the average yield decreased by -130bps to close at 14.4% w/w. At the latest bond auction, the DMO offered N360.0bn but allotted N273.6bn through re-openings of the 14.55% FGN APR 2029, 14.70% FGN JUN 2033, 15.45% FGN JUN 2038 and 15.70% APR 2053 FGN bonds. Demand increased by +99.1% m/m and can be attributed to improved system liquidity.
• As for the Eurobond market, the average yield declined by -70bps to close at 9.9% w/w.
• According to the US Bureau of Labor Statistics, U.S. inflation moderated to 3.1% y/y in November ’23 compared with 3.2% y/y recorded in October ’23. This is the lowest headline inflation rate recorded since June ’23, reflecting the impact of monetary policy tightening. At its latest meeting, the US Federal Open Market Committee held its Fed Funds rate at 5.25%-5.5% we suspect a potential rate cut in early -2024, given the current inflation trend. There are speculations that trimming could be as high as 75bps.

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