A Review of the Nigerian Energy Industry

Financial market products & services update

Financial markets
Financial markets

01 June 2015, Sweetcrude, Houston – Local and international financial market products and services update.
FX: Intervention rate was maintained at $/NGN 197.00. We expect this week to be busy with most looking to see the immediate returns from the transition committee – swift kick off of the Buhari led government with key reforms and plans communicated to ensure engagement

FIXED INCOME: Bullish run in bills continued last Thursday as bills continue the gain in the absence of OMO issuance. Most of the demand remains on the short end of the curve. Given the public holiday in Nigeria on Friday, we expect OMO auction this week. The money market is long about N352.15bn. Tbill yields have declined average 40bps week on week. In bond market, the previous day’s sell off continued but losses where quickly erased as we saw local demand above 14%. O/N rates unchanged at 9%.

COMMODITIES: The price of Brent oil fell almost 1 per cent on Monday to about $US65 a barrel, tempering a rally that saw oil prices climb ahead of the Organisation of Petroleum Exporting Countries meeting on Friday. The price has steadily climbed from a six-year low of $US46 a barrel in January, when a global supply glut meant that Australian consumers briefly enjoyed petrol prices as low as $1 a litre.

NIGERIA: Following the inauguration of the new administration, the naira may be devalued again to reflect the recent drop in Nigeria’s foreign reserves, analysts at Renaissance Capital have said. The analysts said this in a report, ‘Nigeria beyond May 29: Managing expectations,’ which was made available to our correspondent on Friday. The analysts, however, noted that the Central Bank of Nigeria was likely to move back toward a ‘managed float versus the managed peg’ of recent months. They said, “Post-inauguration, we think the naira – which has essentially been pegged at N199/$1 since the mid-February devaluation – will be devalued, to reflect the $4.5bn fall in FX reserves since the February devaluation.” Noting that a weaker naira implied a build-up of inflationary pressures, they observed, “We see inflation breaching the central bank’s inflation target band of six to nine per cent and entering double-digits in Q3 2015. This rules out any prospect of monetary easing in 2015, in our view.”

USA: Long-term Treasuries are heading for their worst quarter in two years, after Pacific Investment Management Co.’s flagship fund doubled holdings of the debt in the first three months of 2015.Thirty-year bonds lost 6 percent over the past two months, according to Bank of America Merrill Lynch data. The $110 billion Pimco Total Return Fund held $18.6 billion of 30-year Treasuries as of March 31, a regulatory filing showed Friday.

CHINA: Chinese policy makers are considering plans to as much as double the size of a clean-up program for shaky local government finances, according to people familiar with the discussions. In what would be the second stage of the program, a further 500 billion yuan ($81 billion) to 1 trillion yuan of local-government loans would be authorized to be swapped into bonds issued by provinces and cities, the people said, asking not to be named because the talks are private. The first stage of the bond swap, currently under way, is 1 trillion yuan.

Macro Economic Indicators
Inflation rate (YoY) for Nov., 2014                   8.70%
Monetary Policy Rate current                          13.00%
FX Reserve (Bn $) as at January 09 2015     29.669

Money Market Highlights
O/N                                  10.8333
30 Days                           15.0437
90 Days                           16.2397
180 Days                         17.4504

USD 1 Month                 0.1863
USD 2 Months               0.2346
USD 3 Months               0.2859
USD 6 Months               0.4250
USD 12 Months             0.7569

Benchmark Yields
Tenor     Maturity     Yield (%)
91d           27-Aug-15         11.73
182d         03-Dec-15        13.83
364d        05-May-16        14.98
2yr            27-Apr-17         13.82
3yr            29-Jun-19        13.92
5yr            13-Feb-20        13.88

Indicative Currency Exchange Rates
                          Bid        Offer
USDNG         196.00      199.50
EURUSD      1.0814       1.1016
GBPUSD       1.5317       1.5519
USDJPY        122.98      123.01
USDCHF       0.94295   0.9531
GBPEUR       1.4024      1.4228
USDZAR      11.9304     12.1338
JPYNGN      161.7497  161.8503
CHFNGN       212.59      214.28
EURNGN       221.59      222.95
GBPNGN        309.16     310.55
ZARNGN          15.90        17.83

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