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Bond Yields Compress Marginally Following Bargain Hunt on Short Tenors

Bonds & Fixed Income	3644 VIEWS
Bonds & Fixed Income
3644 VIEWS

Saturday, April 04 2019 04:50 AM /Zedcrest Capital

***PMS imports rise 21.7% in Q4’18*** - NBS

KEY INDICATORS

Indicator	Value	Commentary
Inflation	11.31%	As at March 15, 2019. A c.6bps decline from 11.37% recorded in January 2019
MPR	13.50%	Cut by 50bps to 13.50% at the Mar. 26, 2019 MPC Meeting
External Reserves	$44.68bn	As at April 3, 2019. A c.0.09% increase from $44.65bn on April 2, 2019
Brent Crude	$69.86pb	As at April 5, 2019. A c.0.16% decrease from $69.97pb on April 4, 2019

Bonds

The FGN Bond market traded on quieter note in today’s session, with yields moderating by c.9bps owing to some bargain purchases mostly on the 2025 and 2026 maturities which traded at a low of 14.26%. The mid to long end of the curve however remained slightly pressured, with yields marginally lower by c.5bps, in absence of any significant demand interests on the maturities.

The DMO released its Q2 2019 FGN Bond calendar today, confirming market expectations for a new 30-year bond offer, whilst also signalling Government’s intention to raise between N85bn – N115bn monthly in Q2 2019.

We expect some more buying interests to compress yields marginally especially on the shorter end of the curve.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
14.50 15-Jul-21	14.79	14.20	(0.08)
16.39 27-Jan-22	14.50	14.05	(0.05)
12.75 27-Apr-23	14.75	14.52	(0.01)
14.20 14-Mar-24	14.51	14.42	0.00
13.53 23-Mar-25	14.55	14.25	(0.27)
12.50 22-Jan-26	14.50	14.26	(0.29)
16.29 17-Mar-27	14.69	14.39	(0.01)
13.98 23-Feb-28	14.69	14.62	(0.08)
12.15 18-Jul-34	14.57	14.42	(0.05)
12.40 18-Mar-36	14.53	14.46	(0.06)
16.2499 18-Apr-37	14.45	14.30	(0.05)

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on a slightly bearish note, with yields slightly higher by c.10bps, as market players remained constrained by the relatively tight system liquidity levels from the signifcant OMO sale yesterday.

We expect yields to remain slightly pressured as system liquidity is expected to remain constrained by an wholesale FX auction opening the new week.

Benchmark Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
2-May-19	9.90	9.65	0.00
13-Jun-19	13.00	11.75	0.75
18-Jul-19	12.00	9.00	0.00
1-Aug-19	12.25	12.00	0.00
12-Sep-19	13.15	12.90	0.00
3-Oct-19	13.15	12.95	0.05
14-Nov-19	13.25	13.00	0.10
5-Dec-19	13.20	12.95	0.00
2-Jan-20	13.20	13.00	(0.05)
6-Feb-20	13.15	12.90	0.05

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market moderated slightly by c.3pct in the absence of any significant funding pressures today. The OBB and OVN rates consequently ended the session at 15.29% and 16.14% respectively.

We expect rates to trend higher opening the new week, due to expected outflows for the weekly wholesale FX auction by the CBN.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	15.29	19.71
Overnight (O/N)	16.14	20.86

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate was unchanged at N307.00/$ (spot) and N355.78/$ (SMIS). The NAFEX closing rate in the I&E window was relatively unchanged at N360.33/$, whilst market turnover rose higher by 105% to $244m. At the parallel market, the cash rate appreciated by 0.08% to N358.30/$ whilst the transfer rate remained unchanged at N364.00/$.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	307.00	307.00
CBN SMIS	355.78	355.78
I&E FX Window	360.33	360.30
Cash Market	358.30	358.60
Transfer Market	364.00	364.00

Source: CBN, FMDQ, REXEL BDC

Eurobonds

We witnessed slight interests in the NGERIA sovereigns, with yields marginally lower by c.1bp on the back of some renewed buying interests mostly on the 2038s.

In the NGERIA Corps, we witnessed slight demand for the FBNNL 21s, UBANL 22s and FIDBAN 22s.