Foreign investors book profit from T-bills pressuring I & E window


December 18, 2017 | 2:30 am
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Foreign investors are selling their Treasury Bills positions, booking profits and turning to the Investors and Exporters Foreign Exchange (FX) window to buy dollars.
Sources tell BusinessDay that the huge demand for dollars is putting pressure on the I&E window and the naira.
The naira hit an all-week high of N361 per dollar Friday, according to data obtained from the website of trading platform, FMDQ.
The naira had opened at N360 per dollar on the day and was up some 0.6 percent from last week’s average of N358 per dollar.
“There has been huge demand for dollars at the I and E window in last three days from foreign investors that are selling off their Treasury bill holdings and repatriating profit,” a source familiar with the matter told BusinessDay.

“It is unclear to what extent the naira will weaken, but it is certain that it will come under pressure in the coming days,” the source said on condition of anonymity.
Yields on Nigeria’s mid-dated treasury bills rose nearly 1 percentage point to 12 percent Friday, extending a three-day rally as a sell-off which started this week continued, traders said.
The one-year yield has been volatile recently, caught between local demand and foreign investors pulling money out of the country, all amid speculation about the outlook for official interest rates.
The one-year Treasury bill rose about 100 basis point to 10 percent on Wednesday after it dived to 7 percent the previous day.
“Investors are currently staying short in the market as there is uncertainty over the direction of interest rates in the near term,” Wale Okunrinboye, head of fixed income research at Ecobank Group told BusinessDay.
The next open market operations OMO auction, Okunrinboye says, could give the best gauge of the direction the CBN wants interest rates to go.
“There is typically more demand for fx in festive periods and this is combining with the foreign sell-off in the T-bill market to create discomfort for the naira,” Okunrinboye said.
‘It is expected that the naira will weaken at the I & E window, but the extent of the weakening will be measured as the CBN has firepower to keep the exchange rate steady,” said Okunrinboye.
The CBN’s external reserves were at an 18-month high of $38 billion as of December 2017, as oil prices above $60 per barrel and improving production help the CBN build dollar firepower.
Oil prices traded at N63 per barrel Friday, according to Bloomberg data. While oil production in Africa’s largest producer has recovered to 1.8 million barrels daily from a near two decade low last year in the wake of militant attacks on oil pipelines.
Foreign investors have a host of reasons to sell off their treasury bill holdings at this moment; the S & P bond index has a year to date return of 26 percent and the naira has since firmed from the N383 per dollar at the inception of the I & E window to N360.
The value of foreign holdings in Nigerian treasury bills are not available, but BusinessDay estimates it could be as high as N1 trillion or $2.7 billion.
Pension funds hold Treasury bills worth some N1.2 trillion as of September 2017, according to data provided by the Pension Commission, while commercial banks held some N 1.2 trillion as at the end of 2016 according to most recent data on the CBN website.
There are N3.77 trillion of outstanding Treasury Bills as at September 2017, according to data from the Debt Management Office (DMO).
There is mixed outlook for Treasury bill yields next year as bond traders fall over one another to pile cash into government debt convinced yields may fall further.
The DMO repaid N131.42 billion ($429.13 million) worth of treasury bills on Thursday instead of rolling them over, thereby slightly reducing its debt and debt-servicing costs for the government.
It also plans to repay N66.62 billion on Dec. 21.
The bills issued as one-year but with between 160- and 220 days to maturity rose 80 basis points on Friday as investors booked profits, traders said.
The DMO released a debt auction calendar for the first quarter on Friday showing a plan to raise a total of N1.08 trillion ($2.9 bln) in treasury bills including those to be rolled over.
The auction calendar showed that there would be more bills hitting the debt market between January and March, adding some pace to the sell-off as investors booked profits now to take position ahead of the auction, traders said.
The DMO has said it wanted to raise Eurobonds or syndicated loans for $3 billion to redeem part of a local Treasury bill holdings.
Nigeria sold $3 billion worth of Eurobonds last month, out of which $2.5 billion is to part-finance 2017 budget deficit and the balance for the refinancing its domestic debt.




December 18, 2017 | 2:30 am
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