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

Bonds & Fixed Income	3420 VIEWS
Bonds & Fixed Income
3420 VIEWS

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 7February 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 7^th 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/$