CBN To Auction N253bn Treasury Bills
The Central Bank of Nigeria (CBN) will this week auction treasury bills worth N252.7 billion.
A breakdown of the proposed sale of the fixed income instrument showed that the regulator will offer 91-day bills worth N6 billion; 182-day bills worth N69.5 billion and 364-day bills worth N177.2 billion.
However, analysts at Lagos-based Cowry Assets Management Limited, in a report at the weekend, anticipated marginal rates to decline in line with inflationary trend.
They also expect that outflows in the system would be more than offset by inflows via maturing treasury bills worth N272.21 billion, “hence we expect stability in interbank lending rates.”
In the week under review, the CBN auctioned treasury bills worth N351.71 billion via open market operations (OMO). The outflows were partly offset by inflows from N67.65 billion in matured treasury bills.
However, following disbursements by the Federation Accounts Allocation Committee (FAAC), worth N655.17 billion, the overnight tenor of the Nigerian Interbank Offer Rates (NIBOR), 1-month and 6-month tenor buckets fell to 5.9 per cent, from 18.3 per cent; 14.41 per cent, from 14.54 per cent; and 16.31 per cent, from 16.96 per cent respectively.
On the other hand, the NIBOR for 3-month buckets rose week-on-week to 15.38 per cent, from 14.94 per cent.
Also, the Nigerian Interbank Treasury Bills True Yields (NITTY) rose for most securities tracked amid sell pressure as yield on the 1-month, 3-month, 12-month maturities increased to 14.01 per cent, from 13.89 per cent; 14.80 per cent, from 13.01 per cent; and 15.52 per cent, from 15.40 per cent respectively; while yields on the six month maturity decreased to 15.08 per cent, from 15.28 per cent.
Meanwhile, in the absence of a meeting of the Monetary Policy Committee (MPC) of the CBN last week, the Bank announced that it shall continue to retain the key monetary policy variables as decided by the MPC at its last meeting in November.
The MPC meeting did not hold due to the inability of the committee to form a quorum.
However, in order to meet with the statutory number of meetings required from the committee in a year, the central bank is considering convening an emergency MPC meeting in February.
A senior central bank official disclosed this to THISDAY.
Section 13 (1) of the CBN Act 2007, stipulates that: “Meetings of the Board shall take place as often as may be required, but not less than six times in every financial year of the Bank.”
But the CBN official expressed optimism that after the proposed emergency meeting next month, the lawmakers would most likely have confirmed the MPC nominees for a proper meeting to hold in March and will reaffirm the decisions of the emergency meeting in February.
Bond Market
In the just concluded week, the FGN bond prices traded at the over-the-counter (OTC) segment moved in mixed directions among the maturities tracked.
For instance, the 20-year, 10% FGN JULY 2030 debt and the 7-year 16% FGN JUN 2019 debt appreciated in value by N0.54 and N0.41 respectively.
However, the 10-year 16.39% FGN JAN 2022 debt and the 5-year, 14.50% FGN JUL 2021 debt depreciated in value by N0.58 and N0.87 respectively.
Meanwhile, the DMO auctioned FGN bonds worth N109.98 billion, viz: 5-year, 14.50 FGN JUL 2021 bond worth N45.10 billion and 10-year, 16.2884% FGN MAR 2027 paper worth N64.88 billion.
The respective marginal rates fell to 13.38 per cent and 13.49 per cent, from 14.79 per cent and 14.80 per cent from the previous auctions.
But FGN Eurobonds traded on the London Stock Exchange appreciated in value for most maturities amid buy pressure.
The 10-year, 6.75% JAN 28, 2021, and the 10-year, 6.38% JUL 12, 2023, increased by $0.04 (yield fell to 4.34% from 4.37%) and $0.12 (yield fell to 4.97% from 4.99%) respectively. However, the 5-year 5.13%, JUL 12, 2018 bonds decreased by $0.04 (yield remained unchanged at 3.32%).
“This week we anticipate bargain hunting at the OTC market, with resultant price increase amid expectation of boost in liquidity,” analysts at Cowry Assets Management Limited stated.
Nigeria may sell $2.5 billion of Eurobonds in the first quarter to refinance its domestic debt and wants to start talks with JPMorgan Chase & Co. about being reinstated on its local-currency emerging-market bond index, the DMO revealed last week.
The issuance would complete a dollar-debt programme that started with selling $3 billion of Eurobonds in November, the Director General of the DMO Patience Oniha told Bloomberg.
President Muhammadu Buhari’s administration is selling more foreign debt to help reduce the financing burden from paying double-digit yields on local-currency bonds.
That would help free up funds to increase investment in infrastructure and spur economic growth.
The issuance is “subject to market conditions”, Oniha said in an interview in Abuja. The whole $2.5 billion could be raised in one go or in tranches, she added.
Oniha said the government also plans to begin talks with JPMorgan about being included in its government bond index for emerging markets.
The nation’s naira securities were removed in 2015 because of foreign-currency shortages.
“We would like to get back on the index,” Oniha said.
Daily trading volumes for the naira have risen to about $200 million from as little as $20 million three years ago, according to Standard Chartered Plc. That bodes well for discussions on returning to the index, according to Oniha.
“The securities trading was never the problem, it was always the foreign-currency liquidity,” which has now improved, she said.
“The government is looking to sell another Sukuk — debt that complies with Sharia principles — after the 2018 budget is approved. The securities are tied to specific projects,” Oniha added.
Nigeria in September sold a seven-year Sukuk of N100 billion ($278 million), and used the proceeds to fund development of 25 roads across the country.
Due to declining borrowing costs in Nigeria, corporate bond sales are expected, probably after the second quarter as the process of issuing improves, Oniha explained.
“There is money on the table. Rates are lower. So let’s begin to work on encouraging corporate bonds. The main reason there aren’t many corporate bonds in Nigeria is because interest rates were too high,” she said.
Of the $3 billion raised in November’s Eurobond sale, $2.5 billion went to funding the 2017 budget, and $500 million to refinancing local debt.
On her part, the Finance Minister, Kemi Adeosun said the government was focused on improving the economy, saying indexes would “naturally” return to Nigeria when they see adjustments in line with their requirements.
“JPMorgan have their own framework of how they evaluate an economy, and when they are ready, when conditions are good, they will list Nigeria again,” Adeosun said in an interview in her office in Abuja
She added: “We should just move in our own direction. What we need to do is to re-position this economy. JPMorgan or any other index will come naturally.
“My focus really is on the recovery of the economy. They will come when the macro fundamentals are right. They left because the macro fundamentals were not right.”
Forex Market
Also, the naira depreciated against the dollar at both the Investors’ and Exporters’ (I & E) and the Bureau De Change (BDC) segments by 0.07 per cent and 0.28 per cent to N360.35 to a dollar and N362 to a dollar respectively on a week-on-week basis.
This was in spite of weekly injections by the CBN worth N210 million into the forex market of which $100 million was allocated to wholesale SMIS; $55 million was allocated to SMEs and $55 million was sold for invisibles.
However, the naira closed flat against the dollar at both the interbank and parallel market segments at N330 to a dollar and N364 to a dollar respectively.
Meanwhile, dated forward contracts at the interbank OTC segment mostly depreciated despite increase in forex reserves as 1-month, 2-month and 3-month contracts depreciated by 0.06 per cent, 0.09 per cent and 0.17 per cent to close at N364.14 to a dollar, N368 to a dollar, and N372 to a dollar respectively.
However, spot rate and six-month contracts appreciated week-on-week by 0.02 per cent and 0.24 per cent to close at N305.65 to a dollar and N385.57 to a dollar respectively.
This week, analysts at Cowry Assets anticipated stability in the naira as global crude oil prices retains its upbeat which should result in further build-up in external reserves.
Nevertheless, Vice-President Yemi Osinbajo last Thursday said a weaker United States dollar does not necessarily hurt the Nigerian economy.
According to Reuters, Osinbajo made the comment after U.S. Treasury Secretary Steven Mnuchin welcomed a weaker dollar, saying it benefited U.S. trade balances in the short term.
“A weaker dollar doesn’t necessarily hurt Nigeria,” Osinbajo said while speaking at the World Economic Forum (WEF) in Davos.
“We are concerned most about ensuring that we are able to make our own exports cheaper and we are working on all of that. Our major concern is how to make ourselves more competitive,” he added.
