Bond Rate Slides as Investors Go For Long-Dated Instruments
Amidst renewed interest on long-dated instruments, the interest rate on government bonds slides 4 basis points on Friday while the Treasury bill closed flat. Analysts said the improved trend of financial system liquidity seen earlier this week upturned as the deficit increased from N74.10 billion on Thursday to N448.50 billion on Friday.
Chapel Hill Denham said in a report that this was driven by open market operations (OMO) sales of N41 million on Thursday and an increase in repurchase agreements -REPOs. Consequently, the open buyback and the overnight rates increased by 5.67% points to close the week at 18.67% and 19.17% respectively.
Overall, analysts said the fixed income market traded mostly flat on Friday with some movements observed in the OMO space.
The Nigerian Treasury bill (NTB) benchmark curve was flattish after the Central Bank auction, closing the week at 5.78%.
The open market operations benchmark curve contracted by 6 basis points to close at 8.88% as Chapel Hill Denham said it noted some bullish interest on longer OMO maturities.
According to Chapel Hill Denham’s market report, the bond benchmark curve traded mostly flat, shrank by 4 basis points to close at 13.34%.
At the OMO auction conducted on Thursday, N41 million worth of bills were offered for sale – N10 million (96-day) and N30 million (348-day).
Analysts said the 348-day bill was oversubscribed as investors continued to display preference for longer maturities across the different segments of the fixed income market. Market data indicates that the auction cleared at 7% and 10.1% for the 96-day and 348-day respectively.
In a related development, the Nigerian local currency, naira, gained 0.24% or 24kobo on Friday in the Investors and Exporters Window while in the parallel market was fixed at N495.
It was noted that the parallel market was flat as Bureau de Change operators hold back their USD with the view that the NAFEX rate will fluctuate and create room for arbitrage.
Low foreign currencies inflow and strong demand for dollar continue to impact external reserves which declined marginally, closing at US$34.24 billion from US$34.26 billion on 26th May.
In the currencies chart:
EUR-USD fell to two-week lows of 1.2133 in early US trading hours but has climbed back to just shy of 1.2200. Firmer U.S Treasury yields lifted the dollar overnight but shifted back after the data as markets appear to have accepted the Fed’s stance that higher inflation does not call for an immediate change of monetary policy.
GBP-USD rallied through the session, topping at 1.4194 into the London close, after opening near 1.4135. The dollar pulled back broadly through the session, with profit taking cited after the DXY printed two-week high of 90.44. The USD lifted into the data but slowed its ascent later in the day.
USD-JPY touched better than one-month highs of 110.20 earlier in the day from overnight lows of 109.80. Even though the pair settled back below 110 later in the day, the outlook for USD-JPY is to the upside due to the COVID situation in Japan.
USD-CAD fell back to 1.2063 lows, down from early US highs of 1.2120. The USD overall has pared gains it saw through the London morning session, which took the DXY to six-session highs.
Firm WTI crude prices remain supportive of the CAD, and given the overall bid in commodities, which is likely to persist as economies continue to reopen, USD-CAD can be expected to test its six-year low of 1.2013, seen on May 18.
Bond Rate Slides as Investors Go For Long-Dated Instruments
