By Kayode Tokede
The Central Bank of Nigeria (CBN) has disclosed that the country’s foreign reserves position sustained its decline, as outflows from the reserves outstripped inflows, dropping by $173.24 million in its week-on-week (w/w) performance to $34.74 billion on Friday.
However, the naira depreciated by 0.1per cent to N410.33 against the Dollar at the Investors & Exporters Foreign Exchange (I&E) window but appreciated by 0.4 per cent to N483.00 against the Dollar in the parallel market.
At the I & EFX, total turnover (as of 6 May 2021) increased by 8.3 per cent WTD to $321.45 million, with trades consummated within the N400.00 – 420.90 against the Dollar band.
In the Forwards market, the rate depreciated in the 1-month (-0.1 per cent to N412.97/Dollar), but strengthened in the 3-month (+0.1 per cent to N418.51/Dollar), 6-month (+0.1% to N427.48/Dollar) and 1-year (+0.2 per cent to N445.47/Dollar) contracts.
According to analysts at Cordros capital, “We expect improved liquidity in the IEW over the medium term, given the higher oil prices and an expected increase in crude oil production volume.
“Accordingly, we expect the naira to remain relatively range-bound (N410.00/Dollar – N415.00/Dollar) at the IEW.
“Similarly, we believe the CBN will devalue the naira by 5.3 per cent to N400.00/Dollar at the interbank market to narrow the gap with the I & FX rate.”
Meanwhile, the overnight (OVN) rate declined by 12.50 ppts w/w, to 15.3 per cent but remained elevated in the absence of significant funding pressures for CRR debits and CBN’s weekly auctions amid thin inflows from OMO maturities (N30.00 billion).
The analysts at Cordros capital added that, “Next week, we expect system liquidity to remain depressed as inflows from OMO maturities (N20.00 billion) may not be sufficient to outweigh weekly funding requirements for CBN’s auctions. Consequently, we expect the OVN rate to remain elevated.
“The Treasury bills secondary market ended the week on a bearish note, as market participants remained apprehensive of the persistent system illiquidity. Thus, the average yield across all instruments expanded by 34bps to 6.7 per cent.
“Across the market segments, the average yield increased by 48bps to 8.4 per cent at the OMO segment, as market participants sold off in anticipation of renewed supply. Similarly, the average yield at the NTB segment expanded by 12bps to 4.9 per cent.
“At the OMO auction, the CBN offered instruments worth N20.00 billion with allotments of N4.31 billion of the 89-day, N3.80 billion of the 180-day and N8.95 billion of the 348-day – at respective stop rates of 7.00 per cent, 8.50 per cent and 10.10 per cent, all unchanged.
“In view of our expectation of liquidity dearth in the system, we expect treasury yields to maintain their upward trend in the short term.
“Also, we expect quiet trading at the NTB market as participants position for next week’s PMA, with N117.56 billion worth of maturities on offer.
“Trading in the Treasury bonds secondary market remained bearish as investors continue to anticipate further increases in FGN bond yields.
“Consequently, the average yield expanded by 44bps to 12.4 per cent. Across the benchmark curve, the average yield was higher at the short (+38bps), mid (+66bps) and long (+26bps) segments, following sell-offs of the MAR-2024 (+110bps), NOV-2029 (+68bps) and MAR-2035 (+64bps) bonds, respectively.
“In the coming week, we expect investors to sustain sell-offs on Treasury bonds as we expect the negative sentiments in the market to persist.
“Thus, we maintain our view of higher bond yields in the short term. Further into the month, we highlight that the release of key macro indicators will shape market sentiments and the direction of yields.
“Such macroeconomic indicators include April 2021 CPI (Cordros Forecast: 18.75 per cent), Q1-21 GDP (Cordros Forecast: +0.94 per cent) and the MPC’s rate decision, which will be largely influenced by the outcome of the Q1-21 GDP number.”