Naira to stabilise on back of anticipated capital inflow

Naira is expected to further stabilise this week following anticipated geared on the upbeat mood in the capital market and the DMO bond auction scheduled for Wednesday, according to analysts at Afrinvest.
A report by Cowry Asset Management Limited stated that this week, Federal Government bonds worth N95 billion will be auctioned on Wednesday, March 11, 2015, viz: 5-year, 15.54% FGN FEB 2020 bond worth N35 billion (re-opening); 10-year, 14.20% FGN MAR 2024 bond worth N30 billion (re-opening) and the 20-year, 12.1493% FGN JUL 2030 bond worth N30 billion (re-opening).
The naira appreciated against the dollar last week while volatility pressure on the local unit also moderated both at the official window, order based interbank market and the naira spot market. This was against the backdrop of dollar sales by oil companies mid-week which lifted the currency, optimism in the domestic capital market which attracted capital flow and sustained intervention in the FX market by the CBN.
The local unit which closed at N202.23/US$1.00 last Friday, strengthened to N199.60/US$1.00 by mid-week at the interbank FX market after dollar sales by oil companies moderated the demand supply gap for the greenback in the FX market. The CBN also adjusted its official clearing rate by 20 kobo to N197.80/US$1.00. The currency gained N2.32 (1.2%) against the greenback to close at N199.91/US1 at the interbank.
With the closure of the bi-weekly RDAS market and the adoption of a special intervention window where the CBN intervenes at the interbank market to fulfill orders based on customer demand (which cannot be resold), the volatility pressure on the naira has moderated, even as liquidity remains low in the interbank market. Banks have additionally been required to provide documentary evidence of order made by customers before placing trade orders in the interbank market, effectively increasing the transparency in the FX market and reducing speculative actions of market players.
The analysts also expect bond yields to remain stable in the week at an average of 15.5 percent.
A report by the firm shows that the sovereign bond market space experienced marginal softening in yields during the week as investors took advantage of the current attractive yield environment amidst the stabilising domestic macroeconomic headwinds (stable oil price at US$61.88) notwithstanding apprehension around the polity. The yield curve maintained its overall normality throughout the week as it was studied to be normal at the shorter and longer end of the curve while it remained inverse at the middle end of the curve.
Average yield in the week dropped marginally by 0.1% to settle at 15.9% relative to the previous level of 16.0%. The noticeable stability in oil prices plus the recovering fiscal fundamentals as well as the relative stability in foreign exchange seem to be attracting discerning investors into the market. In addition, the recent closure of RDAS window by the CBN — resulting into 20.1% further devaluation of the naira — coupled with the high yield environment makes Nigerian bonds attractive.