Nigeria Fixed Income and FX Market Weekly

The Week that was (February 18-22): Robust system liquidity drives short term interest rates south, but bond yields rise post auction

  • CBN relaxes liquidity tightening grip: Interbank liquidity improved at the start of the week as the CBN held off from conducting liquidity mop-ups till Thursday when OMO bill maturities of NGN550billion hit the system. The rise in system liquidity was evident in the over-subscribed OMO sale on Thursday to which the CBN allotted NGN688billion. In recent weeks, we have seen a pick-up in local and offshore interest at the front end, which has weighed on interbank rates with a drop in average overnight/OBB rates to 17.2%/18.5% from 23.7%/26.3% a week ago. Second order impact of the excess liquidity drove increased buying of treasury bills with the 3M and 1-yr tenors sliding 30bps and 10bps to 11.95% and 17.24% respectively.
  • FGN borrows at lower yields in February: At the February bond auction, where the DMO had NGN150billion on offer, robust demand with bid-cover ratio of 1.6x (January: 1.34x) allowed the FG to meet its borrowing target at lower rates (average clearing rate of 14.75% vs 15.27% in January). The clearing rate at the primary auction underpinned a marginal rise in FGN bond yields over the week (+3bps) as markets retraced from recent lows.

Figure 1: NGN Yield curve


Source:  FMDQ, NBS

  • FX flows remain resilient in the face of elections postponement: In the lead up to the 2019 elections, portfolio flows into Nigeria remained robust as FX market turnover increased 26% w/w to USD295million (total: USD1.4billion). The recovery in inflows helped drive a retracement in the exchange rate to NGN361.49/$ at the I&E window after slight weakening at the start of the week following the delayed presidential elections. Across other segments, the Naira held steady at NGN306/$ at the official but appreciated at the parallel market to NGN358/$. FX reserves declined 0.6% w/w to USD42.6billion.

The Week Ahead (February 25-March 1): De-risking of NGN assets at last? NTB auction

  • In the trading week ahead, sentiments regarding the direction of the 2019 elections are likely to dominate market movement. Early results released thus far remain patchy and suggest a close race as President Muhammadu Buhari appears to have taken the NW and large parts of the NE with surprise incursions into the NC, while his opponent Abubakar Atiku is leading in the SE and SS and has taken advantage of APC infighting in the SW to make surprise inroads.  INEC will start state by state announcements tomorrow and we are likely to get a full picture by Tuesday. In the event of a clear winner with no adverse fall-out, bond market bulls are likely to gain ascendancy over the week as offshore demand rushes in to gain exposure to NGN debt instruments. In the event of an opposition win, the NGN assets are likely to experience significant appreciation. Post a peaceful conclusion to the elections, then the CBN is likely to dial back on the frequency of liquidity mopping operations as the Naira stabilizes.
  • With regards to paper supply, there will be an NTB auction on Wednesday where the CBN, on behalf of the FGN, would seek to rollover NGN115billion split across 3M (NGN24.4billion), 6M (NGN38.8billion) and 1-yr (NGN52billion). In addition, the week also sees OMO bill maturities of NGN349billion on Thursday as well as NGN39billion coupon payments related to the FGN 2028 bond.


  • OMO: Open Market Operations
  • CP: Commercial Paper
  • DG: Deputy Governor
  • NTB: Nigerian Treasury Bill
  • FGN: Federal Government of Nigeria
  • CBN: Central Bank of Nigeria
  • DMO: Debt Management Office
  • PBoC- Peoples Bank of China
  • PMA: Primary Market Auction
  • FAAC: Federal Accounts Allocation Committee
  • I&E: Investors and Exporters Window
  • MPC: Monetary Policy Committee
  • NBS: National Bureau of Statistics
  • REER: Real Effective Exchange Rate


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