Treasury bills valued at a total of N196billion are expected to mature this week.
However, the impact of the maturing bills on liquidity level in the market is expected to be tapered by a rollover of the same amount in a treasury bills auction this Wednesday.
In addition, the Central Bank of Nigeria (CBN) is expected to mop-up liquidity by way of open market operations (OMO) auctions at the start of this week, in line with its tightening policy, due to relatively high liquidity, analysts at Afrinvest West Africa Limited have revealed.
To this end, they anticipated that money market rates would rise this week.
Meanwhile, last week opened with improved aggregate financial system liquidity (N134.9 billion from N88.9 billion the preceding Friday).
Consequently, money market rates – open buy back (OBB) and overnight rates declined 41 basis points (bps) and 25bps respectively to close at 7.9 per cent and 8.6 per cent last Monday. However, the CBN mopped up N223.4 billion last Monday and the impact of the debit for successful bids at the auction weighed on system liquidity on Tuesday despite FAAC inflows which hit the system; as a result, OBB and overnight rates rose 7.1 per cent and 7.2 per cent points respectively to close at 15 per cent and 15.8 per cent. Eventually, OBB and overnight rates closed the week at 8.8 per cent and 9.7 per cent, indicating a 49bps and 85bps increase week-on-week respectively. But performance in the treasury bills market was mixed but largely bullish as average rate (across tenors) closed lower on 3 of 5 trading sessions during the week.
Forex Market
Activities at the interbank foreign exchange market remained minimal during the week as liquidity crunch lingered. Also, the CBN’s weekly intervention continued from Monday to Friday as interbank spot rate remained tightly held at N305.00/$ throughout the week. At the parallel market, the naira depreciated on all trading days, from N490/$on Monday, to N497/$ on Friday. This was despite indications by the Association of Bureau De Change operators to adopt N400.00/US$1.00 as BDC rate during the week.
Also, in the Futures market, the value of open contracts rose to $3.8 billion from $3.7 billion the preceding week.
“We observed that the value of the “soon to mature” NGUS JAN 25 2017 rose by $58.3 million during the week. Nonetheless, despite attractive prices of the contracts on offer, most of the contracts in the Futures market remained largely undersubscribed due to overhanging liquidity crisis in the currency market.
“We expect exchange rate at the interbank to remain stable in the week ahead as the CBN continues daily intervention. Meanwhile, plans by the CBN to resume dollar sales to BDC operators may offset some of the pressure on exchange rates at the parallel market,” Afrinvest stated in a report.
Bond Market Review
Sentiment in the local bonds market was broadly bearish last week with yields rising on most trading sessions as investors sold off particularly on the medium to long dated instruments. Average yield across benchmark bonds declined 36bps on Monday before inching higher for the rest of the week save for Thursday when average yields dipped 8bps.
Consequently, average yield closed the week at 16.3 per cent, up 0.2 per cent week-on-week. This week, the Debt Management Office (DMO) is scheduled to conduct its first Primary Market Auction in 2017. The DMO will be re-issuing N40 billion of the JUL 2012, N50 billion of the JAN 2026 and N40 billion of the MAR 2036 instruments.
In the Eurobonds market, performance across Africa sovereigns was largely bearish as yields rose across instruments save for the South African sovereigns, Ghana 2023 and Ghana 2026 instruments. Average yields on the Nigerian sovereign Eurobonds rose 11bps week-on-week.
It was however a largely bullish week for Nigerian Corporate Eurobonds as yield declined on all the instruments but Fidelity 2018 (up 52bps week-on-week) and Access 2021 (up 11bps week-on-week) whilst Zenith 2019 closed the week flat. The FBN 2021 had the best outing thus far in 2017, with year-to-date price change of +3.9 per cent.
December 2016 Inflation
The Consumer Price Index (CPI) rose year-on-year to 18.55 per cent in December 2016, from the 18.48 per cent recorded in November, the National Bureau of Statistics (NBS) revealed on Friday.). Increases were recorded in all Classification of Individual Consumption by Purpose (COICOP) divisions that yield the Headline Index. Communication and Restaurants and Hotels recorded the slowest pace of growth in December, growing at 5.33 percent and 8.91 percent (year-on-year) respectively. The Food Index rose by 17.39 percent (year-on-year) in December 2016, up by 0.20 percent points from rate recorded in November (17.19) percent. During the month, all major food sub- indexes increased, with Soft Drinks recording the slowest pace of increase at 7.66 percent (year on year). Price movements recorded by All Items less farm produce or Core sub- index rose by 18.10 percent (year-on- year) in December, down by 0.10 percent points from rate recorded in November (18.20) percent. During the month, the highest increases were seen in Housing, Water, Electricity, Gas and Other Fuels, Clothing and Footwear and Education, growing at 27.27, 21.62 and 17.84 respectively.
Bureau De Change Operators
The Association of Bureaux De Change Operators of Nigeria (ABCON) last week urged the Central Bank of Nigeria (CBN) and the federal government to harmonise the multiple exchange rates in the country. Also in its bid to create awareness, promote consistency and support the CBN towards achieving exchange rate stability, the association launched an official BDC exchange rate portal. The website was unveiled at a media parley in Lagos . The association also maintained that it’s official exchange rate is $399/$.
Acting president of ABCON, Alhaji Aminu Gwadabe said: “We urge the regulators and the government to harmonise the multiple exchange rates that pervaded the 2016 fiscal year. We also use this medium to appeal to members of the print and electronic media to adopt a single foreign exchange market rate system in their reporting and completely disregard the rates in the parallel market as it is small in volume, cash base and not recognized by enabling law.”
He further said the association would continue to collaborate with CBN to improve the forex crisis.
Diaspora Bonds
The federal government last week disclosed that it will look to issue a debut diaspora bond by March to raise funds from Nigerians abroad, after completing a $1 billion eurobond sale this month. Nigeria is in its first recession in 25 years and needs to find money to make up for shortfalls in its budget. Low prices for crude and militant attacks in its crude-producing heartland, the Niger Delta, have slashed its oil revenues. It first announced plans to sell diaspora bonds in 2013 to raise between $100 million to $300 million, but the government at the time could not finish appointing bookrunners for the sale before an election that swept the opposition into office. The government plans to borrow up to $10 billion, with about half of that coming from foreign sources as it seeks to boost overseas loans to plug funding gaps and lower costs. But so far only the African Development Bank has publicly confirmed a budget support package of $1 billion. The government has held talks for months with the World Bank, China and other institutions to fund the budget gaps. In December, the government appointed Citigroup, Standard Chartered Bank and Stanbic IBTC Bank to manage the $1 billion eurobond sale, which it hopes to begin marketing in January.
World Bank
The World Bank last week predicted that the Nigerian economy would rebound from recession and grow by one per cent in 2017. The multilateral institution stated this in its January 2017 Global Economic Prospects report. Nigeria’s third quarter 2016 real gross domestic product (GDP) had contracted by 2.26 per cent from -2.06 per cent in the second quarter of this year, and -0.36 per cent in the first quarter.
But the World Bank predicted that: “Growth in South Africa is expected to edge up to a 1.1 percent pace this year. Nigeria is forecast to rebound from recession and grow at a 1 percent pace. Angola is projected to expand at a 1.2 percent pace.”
According to the Bank, sub-Saharan African growth was expected to pick up modestly to 2.9 per cent in 2017 as the region continues to adjust to lower commodity prices.
Growth in South Africa and oil exporters was however expected to be weaker, while growth in economies that are not natural-resource intensive should remain robust. Global economic growth was forecast to accelerate moderately to 2.7 percent in 2017 after a post-crisis low last year as obstacles to activity recede among emerging market and developing economy commodity exporters, while domestic demand remains solid among emerging and developing commodity importers, the World Bank said in the report.
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