Bond Yields Crash Following Continued Slow Down In Inflation Rates

Proshare
Wednesday, August 18 2021 / 10:20 AM / by Zedcrest Capital / Header Image Credit: Vanguard News


FGN Bonds 

The FGN bonds market opened the day on a very hushed tone, with the tempo switching mid-market as bids drastically improved amidst scarce supply following the release of the inflation figures by the NBS. July headline inflation saw a month-on-month drop of 37bps, showing a continued slowdown in the rate of increase in prices.

 

Yields dropped across the curve by c.23bps on the average, with the biggest drops seen on the 2027s and 2028s papers which shed 60bps each as bids kept improving to try to entice any kind of supply. The long end of the curve also saw improved bids, with the 2050s paper trading at 12.80% (5bps lower D/D).



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With the monthly bond auction upon us, the ball is firmly in the DMO's court following the continued dip in secondary market yields. The recent lack of offers on FGN bonds suggests scepticism from the market that the DMO may over-issue at this month's issue. The jury remains out, however, as current market yields present an opportunity for the DMO to take a big bite out of its outstanding local funding budget target which is still some way off.

 

FGN Bond Auction Expectation - August 2021

Tenor

Offer (N'bn)

Expected Stop Rate (%)

Previous Stop Rate (%)

Feb-28s

50.00

11.20 - 11.40

12.35

Mar-36s

50.00

12.40 -12.60

13.15

Mar-50s

50.00

12.80 – 12.95

13.25

 

Benchmark FGN Bonds 

 

Description 

Bid (%) 

Offer (%) 

Day Change (%) 

12.75 27-Apr-23 

10.70

10.05

0.00

14.20 14-Mar-24 

11.00

10.10

(0.30)

13.53 23-Mar-25 

11.10

10.30

(0.40)

12.50 22-Jan-26 

11.15

10.35

(0.45)

16.29 17-Mar-27 

11.50

11.00

(0.60)

13.98 23-Feb-28 

11.50

11.00

(0.60)

14.55 26-Apr-29 

12.05

11.50

(0.10)

12.15 18-Jul-34 

12.60

12.25

(0.05)

12.50 27-Mar-35 

12.60

12.30

(0.05)

12.40 18-Mar-36 

12.65

12.35

(0.15)

16.2499 18-Apr-37 

12.65

12.30

(0.15)

9.80 24-Jul-45 

12.50

12.20

(0.25)

14.80 26-Apr-49 

12.70

12.40

(0.05)

12.98 27-Mar-50 

13.00

12.70

(0.05)

 

 

Treasury Bills 

The Treasury Bills market had a relatively quiet session, with residual demand sustained for longer-dated NTB/OMO papers amidst the continued dearth of supply on the streets.


We maintain expect trading activities to remain tepid for most of the week, with a bullish bias in the interim, but with risks of an uptick in yields as the interbank system liquidity is expected to tighten at the close of the week following FGN Bond and Retail FX auction funding pressures on local banks.


 

Benchmark OMO Bills 

Description 

Bid (%) 

Offer (%) 

Day Change (%) 

NGOMOB 0 09/07/21

12.00

2.50

0.00

NGOMOB 0 10/19/21

12.00

3.75

0.00

NGOMOB 0 11/02/21

14.00

4.75

0.00

NGOMOB 0 12/07/21

14.00

5.75

0.00

NGOMOB 0 01/11/22

14.00

6.75

0.00

NGOMOB 0 02/01/22

14.00

6.75

0.00

NGOMOB 0 03/01/22

14.00

7.25

0.00

Benchmark NT-Bills 

Description 

Bid (%) 

Offer (%) 

Day Change (%) 

NIGTB 0 08/26/21

12.00

2.50

0.00

NIGTB 0 09/09/21

12.00

2.50

0.00

NIGTB 0 10/14/21

12.00

3.75

0.00

NIGTB 0 11/11/21

12.00

3.75

0.00

NIGTB 0 01/13/22

14.00

5.75

0.00

NIGTB 0 02/10/22

14.00

6.75

0.00

NIGTB 0 03/10/22

14.00

7.75

0.00

NIGTB 0 04/28/22

14.00

7.75

0.00

NIGTB 0 05/12/22

14.00

7.75

0.00

NIGTB 0 06/09/22

14.00

7.75

0.00

 


Money Markets

Interest rates remained relatively stable today, dipping slightly by c.17bps as naira dealers continued to cover their funding positions amidst consistent tight system liquidity. Open Buy Back (OBB) and Overnight (O/N) rates closed the day at 17.00% and 17.67%, respectively.

 

We anticipate the market to continue trade at these levels, as no positive liquidity respite is expected to come in for the rest of the week.


Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

17.00

17.00

Overnight (O/N)

17.67

17.50

 


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FX Market

 

Supply in the I and E FX window improved slightly compared to yesterday causing rates to improve by 0.04% D/D, closing at N411.50k/$.

 

The Naira also remained relatively stable at the parallel market, with the cash rates swinging around the N514.00/$ mark, while the transfer rate traded at N522.00/$ as demand on both fronts remained persistent.


FX Market

Current (N/$)

Previous (N/$)

CBN SMIS

380.69

380.69

I and E FX Window

411.50

411.67

Cash Market

514.00

514.00

Transfer Market

522.00

520.00

 

Eurobonds:

 

Activities at the SSA Sovereign space remained low as more dealers continue to show improved yields on bonds in a bid to attract trades. We saw few interests on NIGERIA 27s and 47s papers although few volumes trades. By and Large, yields expanded by an average of c.4bps across the NIGERIA's sovereign benchmark curve.

 

The NIGERIA Corporates was more active in comparison to the Sovereign, with demand filtering for a few of the tracked papers (UBA 22s), while the long-dated paper (ECOTRA 2026s) saw some selling pressures on the day.

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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