Coronation Fixed Income and Exchange Rate (CFEX) Update | 20 Sep ‘21

Summary

Opening market liquidity was reported at NGN312.8bn on Friday (17 Sep ‘21). Overnight and repo rates closed within a range of 16.5-20.0%. The secondary market for NTBs was largely bearish due to the increased supply of NTBs and OMO bills from the auctions in the past As a result, the average NTB yield rose by 66bps w/w to close at 5.6%. The average yield for OMO bills also rose by 12bps w/w to close at 6.3%. Last week, the CBN allotted NGN155.9bn worth of NTBs to market participants as it maintained the stop rates across all three tenors (91-day: 2.5%, 182-day: 3.5%, and 364-day: 7.2%). At Thursday’s OMO auction, the CBN allotted N20bn worth of OMO bills across all three tenors and the stop rates remained unchanged from the previous auction (91-day: 7%, 187-day: 8.5%, 334-day: 10.1%).
The secondary market for FGN bonds was bearish in response to sell-offs during the This led to the average yield increasing by 22bps to close at 11.3%. Meanwhile at the Eurobond market, the average yield of the sovereigns under our coverage increased by 4bps to 5.8% w/w.
According to the U.S Bureau of Labour Statistics, headline inflation in the United States eased to 5.3% y/y in August from 5.4% reported in July. Prices rose 0.3% m/m in August compared to 5% in July. However, inflation remains above the Federal Reserve’s target of 2.0%, driven by pent-up demand following the ease of COVID-19 restrictions, supply chain disruptions on raw materials and shortage of semiconductors.

Repo rates and NTB yields (%)

Repo	Current	Previous	NTB	Current	Previous
Overnight	17.8	14.5	NTB 25/11/21	4.15	3.51
30D	17.0	14.5	NTB 24/02/22	4.99	4.45
90D	20.0	16.0	NTB 26/05/22	6.08	5.71
180D	20.0	16.0	NTB 14/07/22	6.72	6.46
OBB	16.5	14.0

FGN bonds and Eurobonds

Security	Price (close)	Yield (close, %)	Change (bps)
16.39% FGN Jan’22	104.07	4.75	58
14.20% FGN Mar’24	110.74	9.27	-39
12.50% FGN Jan’26	106.04	10.72	-6
16.2884% FGN Mar’27	118.24	11.70	68
13.98% FGN Feb’28	110.55	11.60	39
12.15% FGN Jul’34	97.75	12.50	35
12.50% FGN Mar’35	98.34	12.76	4
12.40% FGN Mar’36	97.39	12.80	6
16.2499% FGN Apr’37	123.37	12.76	10
12.98% FGN Mar’50	100.57	12.90	18
6.38%FGN ’23 USD	106.22	2.82	-4
8.75% FGN ’31 USD	112.19	6.95	13
7.88%FGN ’32 USD	107.03	6.91	3
7.63% FGN ’47 USD	99.08	7.71	6
7.38% Zenith ’22 USD	103.34	2.47	-54
7.75% UBA ’22 USD	103.34	2.97	-29

FX dynamics

Last week, the NAFEX rate depreciated by 0.2% or NGN0.88 to close at NGN412.88/USD. In the forwards market, the rate depreciated at the 1-month (0.8% to NGN416.25/USD) and 3-month (0.9% to 420.90/USD) contracts.

Based on data from the FMDQ, NAFEX turnover showed a w/w increase of USD141m from USD88.4m to USD229.8m on Friday (17 Sep ’21). The I&E window (NAFEX) recorded inflows of USD343m with the CBN accounting for 50.00%, the FPIs accounting for 18.03%, non-bank corporates accounting for 15.4%, and others accounting for 16.57%.

Over the past week, Nigeria’s external reserves increased by 1.5% to USD35.4bn (as at 16 Sep ‘21). We maintain our view that the FGN’s imminent Eurobond issuance and the allocation from the International Monetary Fund’s (IMF) Special Drawing Right (USD3.4bn) are likely to shore up fx reserves. Amidst these developments, we expect the NAFEX rate to trade range-bound (NGN410.00/USD – NGN415.00/USD) in the near term.