News Column

Forex Supply Records U.S.$700 Million, As Bond Market Faces Bearish Projection

August 26, 2014

Chijioke Nelson

INDICATIONS may have emerged that the moderating pressure on the Naira, which recorded a 72 kobo week-on-week gain against the dollar last week, made the Central Bank of Nigeria (CBN) to reduce its dollar supply at the primary market by $50 million to $700 million.

Specifically, at the RDAS auctions, the CBN offered $350 million each on Monday and Wednesday last week, out of which $349.7 million and $350 million were sold at the sticky marginal rate of N155.73/$1.

At the Interbank market, the Naira gained three kobo to N162.03/$1 on Monday to consolidate on the 72 kobo week-on-week gain recorded.

However, Afrinvest Securities Limited said rates at the interbank money market would ease further this week on account of high liquidity.

Last week, the inter-bank money market rates inched higher at the beginning of the week, as liquidity tightened further on account of provisions made for Wednesday's Retail Dutch Auction System (RDAS) of the Central Bank of Nigeria (CBN).

Call and Open Buy Back rates climbed 200bps apiece to 14.3 per cent and 14 per cent respectively on Monday, while they remained flat at the interbank money market up till midweek.

However, the distributed revenue of the Federal Accounts Allocation Committee for July totaling N260 billion (for states and local governments) and Open Market Operations' maturities worth N135 billion hit the system, buoying liquidity in the interbank money market towards the end of the week.

This however, offset the RDAS provision (outflow), enabling the benchmark Call and OBB rates to decline 292bps and 283bps to 11.5 per cent and 11.2 per cent respectively.

Meanwhile, the bearish trend in the bond market, which had reigned for a while, halted last week, as bond prices rose, though with 10 basis points (bps) week-on-week decline in average yield to 11.6 per cent.

However, speculations are rife that there would be a marginal drop in the average yield in the bond market this week on the back of improved confidence in the Nigerian bond market as JP Morgan includes the fourth Nigerian bond in its Emerging Market bond index.

Yields on the shorter term dated bonds declined the most, with the FGN September 2014 and FGN April 2015 bonds declining 80bps and 50bps to 10.1 per cent and 10.6 per cent respectively.

Despite the bullish sentiment in the market, the FGN Nov 2028, FGN May 2029 and FGN Nov 2029 bond witnessed some selloffs, with yields advancing 20bps, 20bps and 30bps in that order.

This was attributable to renewed foreign investors' appetite with expectation of a future decline in yields in the medium to long term.

The details of the planned inclusion of the FGN's 2024 bond in the JP Morgan's Government Bond Index-Emerging Markets index, which was announced last week also aroused further foreign interest in the FGN Bond market.

Upon inclusion, the FGN's 2024 bond will be the fourth Nigerian bond in the JP Morgan's Government Bond Index-Emerging Markets index.

However, expectations are now high that the inclusion would deepen foreign participation in the FGN bond market and also improve the overall liquidity of the FGN bond market.

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Source: AllAfrica

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