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Bond Market Turns Bearish as Traders Take Profit Ahead of Q1 Close

Bonds & Fixed Income	4331 VIEWS
Bonds & Fixed Income
4331 VIEWS

Wednesday, March 28, 2018 /7:00 AM / Zedcrest Capital

***States’ Debts Exceed 50% of Their Annual Revenue, Warns FRC***

KEY INDICATORS

Inflation	14.33%	Declined by 0.80% in February from 15.13% in January 2018
MPR	14.00%	Left unchanged at 14.00% at the MPC meeting of November 2017
External Reserves	$45.36billion	Accreted 1.54% as at 22 March from $45.20bn as at 21 March 2018
Brent Crude	$69.58pb	Rose by 0.19% from $69.45pb on 22 March 2018

Bonds

The bond market traded on a significantly bearish note , with sell offs particularly on the short to medium end of the curve, largely driven by profit taking from some market players looking to book profits for the quarter ending, coupled with the relatively weak demand for bonds in the market. Yields consequently rose by c.15bps on average, with traders mostly bearish on the 27s which lost .60pt during the session. We expect the market to remain relatively weak tomorrow, with most traders looking to close the month flat.

FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
16.00 29-Jun-19	14.10	14.03	0.44
15.54 13-Feb-20	13.86	13.79	0.30
14.50 15-Jul-21	13.80	13.73	0.15
16.39 27-Jan-22	13.62	13.55	0.06
14.20 14-Mar-24	13.61	13.54	0.08
12.50 22-Jan-26	13.80	13.73	0.18
16.29 17-Mar-27	13.74	13.67	0.12
12.15 18-Jul-34	13.61	13.54	0.08
12.40 18-Mar-36	13.49	13.42	0.04
16.25 18-Apr-37	13.39	13.32	0.03

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on a relatively flat note as system Liquidity remained relatively tight at c.N75bn positive. We however witnessed slight buying interests as the CBN did not conduct an OMO Auction for the second consecutive session of the week. With expected inflows from retail refunds tomorrow and OMO maturities Thursday, we expect renewed buying sentiments in the T-bills space. This should however be moderated by a resumption in OMO T-bill auctions by the CBN.

Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
12-Apr-18	13.95	13.80	0.00
3-May-18	14.10	13.95	0.00
14-Jun-18	14.20	14.05	0.15
5-Jul-18	14.00	13.85	(0.05)
2-Aug-18	14.05	13.45	0.00
13-Sep-18	13.95	13.80	(0.10)
4-Oct-18	14.15	14.00	(0.05)
1-Nov-18	14.30	14.15	(0.05)
3-Jan-19	13.35	13.20	0.00
14-Feb-19	13.25	13.10	0.00

Source: Zedcrest Dealing Desk

Money Market

The OBB and OVN rates calmed to 20.17% and 21.92% from c.40% levels in the previous session. This came as there were no significant funding pressures in the system, coupled with expectations of inflows from retail FX refunds by the CBN. We expect rates to trend further southwards tomorrow, with inflows from the refunds expected to bolster system liquidity.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	20.17	43.33
Overnight (O/N)	21.92	44.25

Source: FMDQ, Zedcrest Researc h

FX Market

The Interbank rate remained stable at its previous rate of N305.65/$, with the CBN’s external reserves recorded to have improved by 1.51% to $46.04bn as of 26 March. The NAFEX rate fell by 0.05% to N360.23/$, with total volume traded rising slightly by 3.18% to $285m. Rates in the Unofficial market also fell by 0.03% to N361.20/$.

FX Rates
	Current (N/$)	Previous ( N/$)
CBN Spot	305.65	305.65
CBN SMIS	330.00	330.00
I&E FX Window	360.23	360.06
Parallel Market	361.20	361.10

Source: CBN, FMDQ, REXEL BDC

Eurobonds

We witnessed significant interests in the NGERIA Sovereigns, with investors still very bullish on the long end of the curve, even as we observed rallies across other SSA sovereigns (KENINTs, SENEGLs and ZAMBINs) as well. The 32s, 38s and 47s were the highest gainers, pushing the curve lower by c.7bps (+0.5pt).

The Nigerian banks were also bullish on most tickers especially on the FBNNL 21s, ACCESS 21s snr, and the ZENITH and UBANL 22s. This was however to the exception of the FBNNL 20s which witnessed slight retracements from its previous day’s levels. Total traded volumes rose significantly due to increased flows in the SSA space today. The SEPLLN 23s traded within a 99.70 - 100.20 range.

The bullish sentiments could be largely attributed to risk off sentiments in US equities consequently fueling increased fund allocations to EM debt from RM accounts.