Bearish Flattening on Bonds, despite continued offshore sell on the 10-yr

Bonds & Fixed Income
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Friday, February 9, 2018, 10.00AM/Zedcrest Capital

***Oil prices fall as U.S. output soars above 10 million bpd*** 

KEY INDICATORS

Inflation

15.37%

Declined by 0.54% in December from 15.90% in November 2017

MPR

14.00%

Left unchanged at 14.00% at the MPC meeting of November 2017

External Reserves

$41.01billion

Accreted 1.73% as at 7 February from $40.92bn as at 6 February 2018

Brent Crude

$65.19pb

Fell by 1.14% from $65.94pb on 7 February 2018

 
Bonds

The Bond market experienced volatile swings in today’s session, with slight buy interests observed at the start of market, subsequently subsumed in a continued selloff from some offshore clients especially on the 2026 and 2027 bonds, which remained weak throughout the session. Prices however found support towards the close of trading, with yields closing at c.2bps lower than their previous levels, giving an indication of a possible flattening of the intense bearish pressures which have been witnessed since the start of the week. We consequently expect the market to close the week on a relatively calm note, as we maintain a bullish bias with expectations of a downward reversal to pre-selloff levels in the coming week.  

Benchmark FGN Bond Yields

Description

Bid (%)

Offer (%)

Day Change (%)

16.00 29-Jun-19

14.18

14.11

0.06

15.54 13-Feb-20

14.30

14.23

(0.14)

14.50 15-Jul-21

13.79

13.72

(0.04)

16.39 27-Jan-22

13.62

13.55

(0.03)

14.20 14-Mar-24

13.70

13.63

(0.02)

12.50 22-Jan-26

13.85

13.78

0.04

16.29 17-Mar-27

13.75

13.68

0.02

12.15 18-Jul-34

13.69

13.62

0.02

12.40 18-Mar-36

13.59

13.52

(0.07)

16.25 18-Apr-37

13.51

13.44

(0.07)

 

 

 

 

 






Source: Zedcrest Dealing Desk

Treasury Bills
The T-bills market remained bearish as an OMO auction announcement by the CBN further compounded the liquidity pressures in the market, with banks having to bid for clients interested in the longer tenured offering. Yields consequently rose by c.20bps from their previous levels to 15.25% average. Results released by the CBN however showed a total sale of c.N23bn which was lower than the N67bn OMO T-bill maturities. We consequently expect the market to close the week on a relatively calm note, with system liquidity improving slightly from the OMO maturity inflows.

 

 Benchmark Treasury Bills Rates

Description

Bid (%)

Offer (%)

Day Change (%)

1-Mar-18

14.40

14.25

(0.45)

5-Apr-18

15.00

14.85

0.00

3-May-18

13.85

13.70

(0.50)

14-Jun-18

14.60

14.45

0.00

5-Jul-18

14.05

13.90

(0.20)

2-Aug-18

14.20

13.45

0.10

20-Sep-18

14.50

14.35

(0.05)

4-Oct-18

14.40

14.25

(0.30)

1-Nov-18

14.40

14.25

0.30

3-Jan-19

13.90

13.75

0.10

Source: Zedcrest Dealing Desk 

OMO Auction Result

Tenor

Rate (%)

Offer (NBn)

Sub (N'bn)

Sale (N'bn)

 98 day

12.60

30.00

0.12

0.12

252 day

14.40

70.00

23.30

23.30

Source: CBN  

Money Market
The OBB and OVN rates moderated slightly to 46.67% and 48.00% as inflows from OMO T-bill maturities helped to offset outflows from OMO T-bill sales, resulting in a net liquidity balance of c.N42bn positive. We expect rates to close slightly lower tomorrow, as banks are not expected to bid aggressively at OMO due to tight liquidity and high funding costs.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

46.67

53.00

Overnight (O/N)

48.00

53.08


Source: FMDQ, Zedcrest Research 

FX Market

The CBN Official spot rate remained stable at its previous day rate of N305.80/$, with external reserves recorded to have improved by 1.74% to $41.01bn as at 7th of February, 2018.

The spot rate in the Investors and Exporters’ FX Window depreciated by 0.05% to close at N360.40/$ from N360.21/$ in the previous session.

Rates in the Unofficial market however appreciated by 0.06% to N361.60/$ 

FX Rates

 

Current (N/$)

Previous ( N/$)

CBN Spot

305.85

305.85

CBN SMIS

330.00

330.00

I&E FX Window

360.40

360.21

Parallel Market

361.40

361.60

Source: CBN, FMDQ, REXEL BDC  

Related News

1.      CBN releases No-Sale OMO Result, as Finance Minister Announces Prospective $2.5bn Eurobond Issuance

2.      FGN Savings Bond February 2018 Offer

3.      Funding Pressures Push Lending Rates above 30%, amid Continued Sell off on Bonds

4.      Bond Yields Rise on Weak Local Demand and Slight Offshore Sell

5.      DMO issues 2 and 3 year Savings Bonds at 10.277% and 11.277% respectively

6.      Nigeria’s Re-Inclusion to the JP Morgan Index, How Feasible?

7.      CBN sells N215bn OMO T-bills to Mop up Excess Liquidity Inflows

8.      CBN sells N253bn T-bills at c.10bps lower than previous Auction Rate

9.      FGN Domestic Debt Service Payment Increased In Line With The Stock of Domestic Debt

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