- Interbank Rates Rise as CBN Sells Treasury Bills, Dollars
Nigeria’s interbank lending rate rose to around 20 per cent on Friday, from five per cent on Thursday, after the central bank sold treasury bills to mop-up excess liquidity and announced plans to sell dollars to businesses.
The interbank rate reflects the level of naira cash liquidity in the banking system.
The central bank said in a notice to commercial lenders on Friday it would sell dollars to manufacturers, airlines, fuel importers and agriculture businesses at a special auction to clear their backlog of foreign exchange obligations.
Traders said the auction and sales of treasury bills left some banks short of liquidity, forcing them to scramble for cash to pay for their purchases on the interbank market. That pushed up the cost of borrowing among lenders.
The central bank sold N86.25 billion worth of 365-day and 195-day treasury bills on Friday in a bid to reduce excess liquidity following the government’s distribution of debt refunds to some states on Monday.
According to Reuters, traders said some banks initially quoted as high as 50 per cent for overnight placement but this fell to around 15-20 per cent toward the market close.
“We expect the interbank rate to trend down further after results of the special forex auction are announced and more liquidity flows into the market,” one currency trader said.
Meanwhile, money market rates trended lower on all trading days of the week save for Friday on the back of higher system liquidity; thus, Open Buy Back (OBB) rates rose five per cent week-on-week to 14 per cent on Friday.
At the start of the week, OBB and overnight rate eased 2.8 percentage points apiece to close at 6.2 per cent and 6.9 per cent respectively (from 9% and 9.8% recorded the preceding Friday) owing to Paris Club loans repayment of N243 billion which hit the system late on Friday of the preceding week.
According to Afrinvest West Africa Limited, the CBN conducted Open Market Operations (OMO) auctions on the first two trading days to squeeze liquidity, selling N19.5 billion and N41.8 billion of OMO bills last Monday and Tuesday respectively, in addition to foreign exchange (FX) auctions last Monday, which had minimal impact on system liquidity.
Nonetheless, financial system liquidity further improved midweek on the back of a FAAC inflow of N462.36 billion; consequently, money market rates continued to moderate in subsequent sessions – OBB and overnight rates settled at 4.8 per cent and 5.3 per cent respectively on Wednesday and closed flat on Thursday as the impact of N97.4 billion OMO maturity was offset by debit for Wednesday’s treasury bills Primary Market Auction (PMA).
The CBN further mopped up N213.9 billion on Friday via an OMO auction, thus, OBB and overnight rates inched higher to 14 per cent and 14.9 per cent on Friday.
“The improved system liquidity at the start of the week triggered buying interest at the treasury bills market as rates trended lower across tenors on all trading days of the week,” Afrinvest West Africa Limited stated.
It revealed that average treasury bills rate closed 13 basis points lower at 18.1 per cent on Monday and the bullish sentiment was sustained till mid-week as rates trended 26 basis points lower despite treasury bills maturity of N97.9 billion and a rollover of N205 billion – implying a net-debit of N107.1 billion.
The CBN offered N36.8 billion of the 91-day, N39.2 billion of the N182-day and N129 billion of the 364-day instruments.
Expectedly, investors positioned at the longer end of the curve as all instruments were undersubscribed and under allotted save for the 364-day instrument.
The CBN allotted N32.4 billion of 91-day bills at stop rate of 13.4 per cent, N26.6 billion of 182-day at 17.4 per cent and N145.9 billion of 364-day at 18.5 per cent respectively. Average treasury bills rates across benchmark instrument settled at 17.6 per cent on Friday, down 62 basis points week-on-week.
“This week, there will be maturing treasury bills worth N65.032 billion viz: 364-day bills. We however anticipate limited impact of the maturities; hence, we expect some pressure on financial system liquidity and resultant increase in interbank rates,” analysts at Cowry Assets Management Limited stated.
On their part, Afrinvest anticipated that the CBN would continue its aggressive stance by way of OMO and foreign exchange auctions.
“Hence, we expect money market rates to be altered by liquidity dynamics,” they added.
The currency market continued to witness consistent improvements in liquidity and rates convergence this week. The CBN also sustained its interventions at the interbank market via Wholesale and Retail SMIS which continued to boost liquidity and confidence in the economy. Last Monday, the central bank intervened in the foreign exchange market, selling $195 million in total – US$100 million to the wholesale segment, US$50 million to the small and medium enterprises (SMEs) segment and US$45 million allocated to the retail invisibles segment to cater for demand for business/personal travel allowances, school tuition, medical fee etc.
Against this backdrop, naira exchange rate at the official market appreciated three basis points to N305.80/$1 from the preceding week’s close of N305.90/$1.
Meanwhile, at the FMDQ NAFEX segment, a total of US$257 million was traded between Tuesday and Friday; yet, the currency depreciated 0.2 per cent week-on-week at the window to N365.33/$1 from N364.66/US$1 in the prior week.
Likewise, rate at the parallel market depreciated 0.8 per cent to N370/US$1.00 from the preceding Friday’s close of N367.00/US$1.00.
Also, at the FMDQ OTC Futures segment, the value of open contracts closed the week lower at US$2.2 million from the previous week’s close of US$2.8 billion owing to the naira/dollar JULY 2017 contract valued at US$657.6 million which matured during the week, Afrinvest disclosed.
In line with trend, the CBN replaced this maturing contract with the naira/dollar JULY 2018 instrument.
“However, in line with recent trend, we do not expect keen interest in the newly opened contracts. All contracts opened since May 2017 – following upward revision of prices – have received minimal interest.
“The NG/US JUN 2018 and NG/US JUL 2018 have received a total subscription of US$56.9 million and US$18.3 million respectively while the NG/US MAY 2017 has not attracted any subscription since the change in settlement exchange rate to NAFEX from NIFEX.
“We expect the stability in the FX market to be sustained in the short to medium term as the CBN continues its intervention in the spot and forward markets as well as the improvement in the NAFEX window,” they added.
Bond Market Review
According to Afrinvest, the lacklustre trend which had pervaded the activities in the domestic bond market was sustained last week with marginal movements in yields recorded through the week. At the start of the week, average yield across the bond yield curve declined to 16.7% (from 16.8% the preceding Friday) as the price appreciation in the JUL 2017 instrument was offset by impact of sell offs recorded in mid to long tenored bonds. This was reversed on Tuesday as sell offs were recorded across board while average yield climbed to 16.8%. However, sustained buy interest in the JUL 2017 and AUG 2017 instruments dictated performance for the rest of the week as average yield fell four basis points and 12 basis points on Wednesday and Thursday but stayed flat on Friday to eventually close the week at 16.7%, down 15 basis points week-on-week.
In the coming week, they predicted that the performance of the domestic bond market would be largely determined by deliberations from the Monetary Policy Committee which commences today.
Meanwhile, the report showed that the upbeat performance of the Sub-Saharan Africa Eurobonds from the preceding week, persisted last week as yield on all trading instruments declined week-on-week save for the GABON 2027 (+0.2%), SOUTH AFRICA 2019 (+2bps) and SOUTH AFRICA 2041 (+2bps).
“We attribute the sustained interest in SSA Eurobonds to statements from the US Fed which suggests that rate hikes may be implemented at a slower pace during the year. NIGERIA 2023 instrument is the best performing with a YTD gain of 6.7%.
“Across the Nigerian Corporate Eurobonds, performance for the week was mixed albeit more positive than negative. Yield across all trading instruments declined week-on-week save for the DIAMOND 2019 (+9bps), GUARANTY 2018 (+1bp) and UBA 2022 instrument which closed flat.
“The DIAMOND 2019 (+22.2%) and FBN 2021 (+20.1%) instruments remained the best performing year-to-date and we believe this is broadly tied to the attractive pricing of the instruments,” Afrinvest added.
Brent Crude Oil Approaches $70 Per Barrel on Friday
Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension
Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.
Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.
Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.
While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.
According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.
“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”
Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.
“The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.
“I do believe we’re headed for a much healthier supply and demand environment” she said.
Oil Jumps to $67.70 as OPEC+ Extends Production Cuts
Oil Jumps to $67.70 as OPEC+ Extends Production Cuts
Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.
OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.
Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”
Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.
Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.
Experts have started predicting $75 a barrel by April.
“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”
Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin
Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges
Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.
The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.
The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.
“We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.
Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.
Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.
In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.
The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.
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