FPI Claims, Swaps Reduce Nigeria’s External Reserves to $16.2bn
Godwin Emefiele -CBN Governor

FPI Claims, Swaps Reduce Nigeria’s External Reserves to $16.2bn

Foreign Portfolio Investors (FPI) claims, swap on the Nigeria’s external reserve have reduced the amount by more than half.

Experts at Chapel Hill Denham explained that the external reserves of the nation is much lower than $35.62 billion as indicated on the Central Bank of Nigeria (CBN) website.

In its Market report, the investment firm stated that external reserves stood at US$35.62 billion last week, which is equivalent to 6.4 months of 2020 goods and services imports cover.

However, adjusting for foreign portfolio Investment (FPI) holding of Open Market Operations bills valued at US$11.2 billion and Swaps worth US$8.2 billion, the reserves is much lower at US$16.2 billion.

Chapel Hill Denham explained that the naira-dollar currency pair closed the week largely flat at N379.00, N380.69, and N386.00 at the official, secondary market intervention sales (SMIS), and Investors & Exporters windows, respectively.

Meanwhile, average daily turnover at the Investors & Exporters window was up by 4.26% week on week to US$140.29 million, which analysts said it is still considerably lower than Q1-2020 average of US$350 million.

Despite the CBN’s ramped up intervention, analyst detailed that sales in the Investors & Exporters Window amounted to US$558 million in October compare to US$434.5 million in September, and resumption of sales in the Bureau De Change segment in September (US$20,000 per week to each BDC), the Naira has fallen to its weakest level in six weeks in the parallel market, exchanging for N470 per dollar on Friday.

“This comes as no surprise to us, as we had earlier warned that the volume of intervention sales is lower than demand, with demand also likely to increase ahead of the December holiday season”, Chapel Hill Denham explained.

The firm noted that pressures will likely persist in the near term, unless the CBN ramps up intervention sales.

Meanwhile, sentiments remained mixed in Nigeria’s fixed income market week as short term rates rallied while bond yields advanced.

The Nigerian Treasury Bills (NTB) benchmark curve compressed by 44 basis points (bps) week on week to 0.10%, on the back of the bullish outcome of NTB auction which held mid-week, as well as buoyant liquidity in the financial system which kept interbank funding rates subdued at low single-digit.

On the other hand, yields on benchmark bonds expanded by an average of 16bps wow to 4.28%, as duration apathy continued in response to extraordinary low yields.

This was also supported by the National Pension Commission (PENCOM) guideline on classification of marked-to-market bond portfolios of Pension Fund Administrators (PFA).

At the NTB auction on Wednesday, the DMO offered N167.82 billion across three tenors, while subscription totaled N603.12bn, implying a bid-cover ratio of 3.6x (5.3x previously).

The DMO allotted the same amount offered, while stop rates compressed by an average of 45bps to new record low of 0.16%: N19.78bn of 91-day at 0.035% (-31bps from 0.341%), N10.0bn of 182-day at 0.150% (-35bps from 0.500%), and N138.03bn of 364-day at 0.30% (-68bps from 0.980%).

Analysts stated that the outcome of the auction subsequently sparked off risk-on appetite in the equities and NTB market, but curiously excluded bonds.

“It would appear that traders are waiting for the bond auction holding this week (on Wednesday) to gauge the DMO’s aggression before taking a directional view of the market”, Chapel Hill Denham stated.

Based on the bond auction circular published last week, the DMO plans to raise up to N80bn, split equally at N40bn between the 15-year MAR 2035 and 25-year JUL 2045 reopening.

The previous auction cleared at 4.97% and 6.00% respectively.

Liquidity is expected to remain buoyant in the money market, supported by OMO maturities (N281bn) on Tuesday, which should lead to decent subscription level at the auction.

Read Also: Naira Plunged despite Foreign Currency Intervention Sales

FPI Claims, Swaps Reduce Nigeria’s External Reserves to $16.2bn