Fixed Income Market Update: 1st July, 2021

MARKET NEWSLETTER AS AT 1ST JULY 2021 

Analyst : Judith Idialu  (Zock Capital & Investment)

Foreign exchange Market

At the I&E FX market, Naira appreciated by 0.19 % as the dollar was quoted at ₦410.70 as against the last close of ₦411.50. Most participants maintained bids between ₦400.00 and ₦420.95 per dollar.

External reserve

Nigeria’s external reserve dipped by $46.3 million on Tuesday, 29th June 2021 to stand at $33.37 billion. This represents a 0.14% decline compared to the $33.42 billion recorded the previous day.Nigeria’s foreign reserve fell to its lowest position since October 2017, as its year-to-date decline surpasses $2 billion, while its month-to-date decline stands at $858.53 million. This is despite the recent bullish trend recorded in the global oil market.The decline may be attributed to reduced forex earnings, especially from crude oil export due to the cut in production quota, as well as the widening international trade deficit.

The CBN, which operates a managed float foreign exchange system, also periodically supports the currency using the external reserves, and a lower reserve is expected to affect the currency.

Daily Foreign Exchange Rates (Dollar / Pounds / Euro Exchange Rates)

TREASURY BILLS  PRIMARY MARKET AUCTION  (PMA).

The CBN held the Primary Market Auction on June 30 and sold 91-day (₦2.26 billion), 182 day (₦3.32 billion), and 364 day (₦158.04 billion) tenors. The stop rates for the 91day and 182-day remained unchanged at 2.50 % ,3.50 % and 9.15 %.  The secondary market treasury bills  market closed on a flat note as the average yield remained unchanged at 6.58 %. Market players maintained a quiet stance for the intra day trading session awaiting the outcome of the PMA result.The  average yields across  short,mid and long maturities closed flat at 4.35 %, 5.46 percent, and 8.10 percent, respectively. We saw  selling pressure for  the NTB 26-May-22 maturity and purchase order  for  NTB 9-Jun-22 maturity bill causing 17bps dip in yield . For the OMO bills market, the average yield closed  at 9.86 % as against the previous day of 9.87 %. Player traded with mild buying interest for OMO 15-Mar 22 , OMO 1-Mar-22 , and OMO 15 Feb-22  maturity bills.

MONEY MARKET
As at the start of a new month , the Overnight rate remained unchanged at 12.00%  while the Open Buy Back rate also remained unchanged at 11.50 %.

PREVIOUS FGN BOND PMA AUCTION RESULT

FGN BOND MARKET YIELD CURVE
Coronation Merchant Bank Funding SPV Plc has listed its 5-year ₦25.0 billion bonds under the ₦100.0 billion bond issuance program on Nigerian Exchange Limited on June 30. The series 1 fixed-rate subordinated unsecured bonds are issued at a coupon rate of 6.25 percent with maturity in 2025.

FGN bonds secondary market experienced a mixed sentiment although it was more of buying sentiment, as the average bond yield across the curve cleared lower by 7 bps to close at 9.76 % as against 9.83 %  previous day. The 18-JUL-2034 maturity bond was the best performer with a decline in yield of 55 bps.

FGN BENCHMARK BOND

Naira Depreciates Across Forex Markets As Crypto Investors Lose Over $40.35 Billion

The exchange rate between the naira and the US dollar closed at N411.5/$1 at the official I&E window.Naira depreciated against the US dollar on Wednesday to close at N411.5 to a dollar compared to N410.83/$1 rate recorded on Tuesday, 29th June 2021.The exchange rate also depreciated against the US dollar at the parallel market to close at N503/$1 compared to N502/$1 recorded on Tuesday. The drop in the value of the naira may be attributed to the activities of speculators and lower liquidity at the forex market.Meanwhile, crypto investors lost about $40.35 billion on Thursday morning, as the market dipped by 2.81% to bearish sentiments resulting from recent regulatory scrutiny witnessed by the industry.

NAIRA LOSES AT OFFICIAL, BLACK MARKETS

Naira fell marginally against the U.S. dollar at the parallel market on Wednesday after it remained unchanged for the past two days.The currency also fell at the official market after maintaining steady gains in the last two sessions.Data posted on abokiFX.com, a website that collates parallel market rates in Lagos showed that the naira closed at N503.00 per $1 at the black market window on Wednesday.This represents a N1.00 or 0.20 per cent devaluation from N502.00 it traded in the last two previous sessions.Also, data posted on the FMDQ Security Exchange where forex is officially traded showed that the naira closed at N411.50 at the Nafex window.This represents a N0.67 or 0.16 per cent depreciation from the N410.83 rate it traded in the previous session on Tuesday.

The local unit clinched an intraday low of N420.95 and a high of N3400.00 before closing at N411.50 on Wednesday.This happened as forex turnover dipped by 25.71 per cent, with $160.12 million recorded at the end of the market session as against the $215.53 million posted in the previous session on Tuesday.The spread between the parallel market and the Over-the- Counter rates stood at N91.50, translating to a margin of 18.20 per cent as of the close of business on Wednesday.

BANK OF ENGLAND’S ANDY HALDANE WARNS OF INFLATION RISES

The Bank of England’s outgoing chief economist has warned that inflation could rise by more than expected and force the central bank into a dangerous “handbrake turn” to stop the economy from overheating.In a parting shot at his fellow rate-setters on his final day at Threadneedle Street on Wednesday, Andy Haldane said he expected that a surge in consumer prices would drive UK inflation close to 4% this year.

The Bank’s nine-member monetary policy committee (MPC), from which he is standing down, said last week it expected inflation to peak at 3% by the end of 2021, before falling back in 2022 as the post-Covid economic boom fades.

In a speech to the Institute for Government thinktank marking his departure from the Bank, Haldane said there were reasons to believe that current isolated pockets of rising prices in parts of the UK economy would translate into a wider “significant and persistent” rise in inflation.By the end of this year, I expect UK inflation to be nearer 4% than 3%,” he said.

NIGERIA’S NAIRA IS OVERVALUED BY UP TO 10%, CENTRAL BANK

Nigeria’s spot naira rate is overvalued by up to 10%, Central Bank Governor Godwin Emefiele told investors last week, two sources familiar with the briefing said.

Emefiele told an investor call last week arranged by Standard Bank that the spot naira rate of 410-412 per dollar would eventually weaken by 5% to 10%, according to one person on the call and another who was briefed on it afterward. He based his comments on the central bank’s real effective exchange rate (REER) model.The central bank did not respond to calls and messages seeking comment.

The gap between Nigeria’s numerous exchange rates has frustrated investors. The World Bank has demanded closer parity before the release of a much-needed $1.5 billion budget support loan. Importers have also struggled to access the foreign currency they need to buy goods.Since March last year, the bank has devalued the naira three times. The devaluation in May, which was an attempt to unify the rates, effectively weakened the currency by 7.7%.But the currency recently slid to a more than three-year low of 500 naira on the black market as dollar liquidity dropped.

The source on the call said that Emefiele said the currency market would continue operating as it is and “eventually converge towards the fair value.

Emefiele also estimated that there was a backlog of less than $1 billion in dollar demand that the central bank had a framework to meet, and said that investors would be able to get their money out of Nigeria in an orderly manner, the sources

Fintech startup, FairMoney raises $42 million Series B round

Nigerian fintech startup, Fairmoney, has raised a $42 million Series B round.This round was led by the US hedge fund and investment firm, Tiger Global. Existing investors that participated in the round include DST Partners, Flourish Ventures, Newfund and Speedinvest.The investment comes after FairMoney raised €10 million Series A round two years ago and €1.2 million seed in 2018.With an active presence in Nigeria and India, the startup plans to diversify its current offerings and expand to become the preferred financial destination for its users.

BOND YIELDS WEIGH ON NIGERIA STOCK MARKET SENTIMENT

The Nigerian stock market has had a dreadful first half of the year, with losses owing to a slow recovery and rising yield. Although recent auctions have witnessed a decrease in rate, the decrease may be too little to spark stock market activity.Given current business values, the macroeconomic environment, and fixed income market rates, it is predicted that investors would favour certain counters throughout the market as the economy continues to recover from the COVID-induced recession.So far in 2021, we have seen a return to the Fixed Income market as a result of rate rises, as previously indicated. This has coincided with a drop in the local equities market, which has lost 5.89% YTD at the time of writing this report as investors seek safe haven options. However, local market rates remain considerably below current inflation rates, a situation made worse by the depreciation of the Naira.

NAIRA DEPRECIATES ACROSS FOREX MARKETS AS CRYPTO INVESTORS LOSE OVER $40.35 BILLION.

Wednesday, 30th June 2021: The exchange rate between the naira and the US dollar closed at N411.5/$1 at the official I&E window.Naira depreciated against the US dollar on Wednesday to close at N411.5 to a dollar compared to N410.83/$1 rate recorded on Tuesday, 29th June 2021.The exchange rate also depreciated against the US dollar at the parallel market to close at N503/$1 compared to N502/$1 recorded on Tuesday. The drop in the value of the naira may be attributed to the activities of speculators and lower liquidity at the forex market.Meanwhile, crypto investors lost about $40.35 billion on Thursday morning, as the market dipped by 2.81% to bearish sentiments resulting from recent regulatory scrutiny witnessed by the industry.

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