UPDATE 3-Nigerian naira forwards at one-month high despite Treasury yield rise

(Adds bond market reaction)
By Chijioke Ohuocha
ABUJA, Feb 5 (Reuters) - The U.S. dollar firmed to a
one-month high against the Nigerian naira in non-deliverable
forwards markets on Friday, even though the Nigerian central
bank almost doubled open-market Treasury yields at an auction a
day earlier.
The bank on Thursday sold one-year bills at 11.22%, up from
6.1% at its previous auction in January. Prior to the two
auctions, the secondary market was trading at close to zero last
year, as foreign investors exited local assets.
Yields in Nigeria have been at historic lows since two
interest rate cuts last year and an increase in liquidity on the
money markets to try to reflate an economy suffering from its
second recession in five years.
Bond market yields climbed following the central bank's
action on Treasuries. The 2023 bond rose 365 basis points on
Friday on a wider bid-offer spread due to thin liquidity,
traders said.
"These developments are signalling that the central bank may
allow the NAFEX (spot market) rate to rise further - which has
started to materialise - possibly to levels close to one-month
futures prices," said Samir Gadio, head of Africa strategy at
Standard Chartered Bank.
The central bank this week revised its futures contracts
upwards, to try to reduce pressure on the naira, which has been
hit hard by the coronavirus-induced plunge in the price of oil,
Nigeria's key currency earner.
On the non-deliverable forwards market, the one-month
dollar/naira NGN1MNDFOR= stood at 411.25 points, up from
Thursday's close of 408, Refinitiv data showed. The naira
forward had been quoted at a high of 415 in January.
The naira has been losing ground on the derivatives market,
mirroring weaknesses on the black market, where the currency
trades more freely.
It dropped to a record intra-day low on the spot market this
week and quoted at 480 naira to the dollar on the black market,
against the official rate of 381 naira, set in July and backed
by the central bank.
"Can portfolio flows resume at these new OMO (open market
operation) bill yields, assuming a move higher in the exchange
rate towards 410 or so? Probably not yet as non-residents will
require higher returns," Gadio said.