I & E FX window: Naira depreciates by 0.3% to N411.50/USD
By Kayode Tokede
The naira depreciated by 0.3 per cent to N411.50 against the Dollar at the Investors & Exporters Foreign Exchange window (I&E) but appreciated by 0.4per cent to N504.00 against the Dollar in the parallel market.
At the I& E FX, total turnover (as of 22nd July 2021) decreased by 59.3per cent WTD to $306.01 million, with trades consummated within the N403.22 – 420.95 against the Dollar band.
According to analysts at Cordros research, “We expect improved liquidity in the IEW over the medium term, given our expectation of (1) increased oil inflows in line with the rise in crude oil prices, and (2) inflows from FCY borrowings. Accordingly, we expect the naira to remain relatively range-bound (N410.00/$ – N415.00/$) at the IEW.”
The overnight rate expanded by 24.00ppts w/w to 28.8per cent, as debits for CRR, FGN bond (N137.97 billion) and CBN’s weekly auctions outweighed system inflows from FAAC disbursements (c.N428.14 billion), FGN bond coupon payments (N134.74 billion) and OMO maturities (N20.00 billion).
“We expect the OVN rate to remain elevated in the coming week, as expected inflows from FGN bond coupon payments (NGN53.28 billion) and OMO maturities (NGN16.84 billion) may not be significant enough to saturate system liquidity.
“The Treasury bills secondary market extended its bullish run this week, following sustained demand for higher yielding OMO instruments. Thus, average yield across all instruments contracted by 28bps to 7.8per cent.
“Across the market segments, the average yield at the OMO segment contracted by 73bps to 8.6per cent in the absence of fresh supply from the CBN. Elsewhere, the average yield at the NTB segment expanded by 20bps to 6.9per cent, as participants sold off positions to meet short term funding obligations.
“In the coming week, we maintain our view of a higher average yield on T-bills, given that we expect system liquidity to remain strained. Also, we expect quiet trading at the NTB market as participants position for the PMA scheduled to hold on 29 July, with the CBN set to roll over N216.19 billion worth of maturities.
“The Treasury bonds secondary market closed the week on a bullish note, as (1) yields adjusted to reflect the lower rates at Monday’s auction, and (2) market participants looked to the secondary market to fill unmet demand. Consequently, the average yield contracted by 7bps to 12.1per cent.
“Across the benchmark curve, the average yield decreased at the short (-7bps), mid (-7bps) and long (-10bps) segments due to investor’s demand for the JAN-2026 (-17bps) and MAR-2027 (-12bps) and JUL-2034 (-39bps) bonds, respectively.
“At the bond auction, the DMO offered instruments worth N150.00 billion to investors through re-openings of the 13.9800% FGN FEB 2028 (Bid-to-offer: 1.13x; Stop rate: 12.35%, previously: 12.74%), 12.4000% MAR 2036 (Bid-to-offer: 1.47x; Stop rate: 13.15%, previously: 13.50%) and 12.9800% FGN MAR 2050 (Bid-to-offer: 3.13x; Stop rate: 13.25%, previously: 13.70%) bonds.
“We note that the demand was less (subscription: N286.11 billion; bid-to-offer: 1.9x) compared to June’s auction (Subscription: N417.48 billion; Bid-to-offer: 2.8x). The DMO eventually under-allotted instruments worth N137.97 billion, resulting in a bid-to-cover ratio of 2.1x.
“In the coming week, we expect investors to take advantage of the increased supply in the market and realign their positioning on the yield curve in anticipation of further decline in bond yields.”
