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Bond Yields Rise on Weak Local Demand and Slight Offshore Sell

Bonds & Fixed Income	4199 VIEWS
Bonds & Fixed Income
4199 VIEWS

Monday, February 5, 2018, 7.00PM/Zedcrest Capital

***FG, States, LGs Shared N5.9tn in 2017***

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	$40.79billion	Accreted 1.74% as at 2^nd February from $40.75 as at 1^st February 2018
Brent Crude	$68.37pb	Fell by 0.39% from $68.64pb on 2^nd February 2018

Bonds

The bond market traded on a slightly bearish note due to slight sell by some offshore clients on the 10– and 20-yr bonds. Yields however recorded a substantial uptick (c.7bps) due to weak demand from domestic participants. We observe that developments in the global bond markets (the US in particular) have begun to shape offshore investors allocation to emerging market debt. This has been earlier anticipated following expectations of a rate hike by the US FED. Barring any continued sell off from offshore, we expect relative stability in the mkt, with some possible downward retracements, as some local clients are expected to begin eyeing the slightly higher yields on bonds.

Benchmark FGN Bond Yields
Description	Bid (%)	Offer (%)	Day Change (%)
16.00 29-Jun-19	13.92	13.85	0.07
15.54 13-Feb-20	13.64	13.57	0.06
14.50 15-Jul-21	13.37	13.30	0.03
16.39 27-Jan-22	13.22	13.15	0.10
14.20 14-Mar-24	13.49	13.42	0.04
12.50 22-Jan-26	13.49	13.42	0.07
16.29 17-Mar-27	13.54	13.47	0.06
12.15 18-Jul-34	13.50	13.43	0.07
12.40 18-Mar-36	13.41	13.34	0.05
16.25 18-Apr-37	13.41	13.34	0.10

Source: Zedcrest Dealing Desk

Treasury Bills
The T-bills market traded on a relatively quiet note, with slight buys observed on some short tenured bills. The Medium to long end of the curve however traded on a relatively flat note, as the CBN resumed its OMO auction, selling a total c.N116bn of the 98– and 266-day bills, with rates maintained at 12.60% and 14.40% respectively. We expect this flattish trend to persist, as the CBN is expected to continue with its OMO issuance.

Benchmark Treasury Bills Rates
Description	Bid (%)	Offer (%)	Day Change (%)
1-Mar-18	12.50	12.35	(0.10)
5-Apr-18	13.55	13.40	0.00
3-May-18	13.40	13.25	0.25
14-Jun-18	14.30	14.15	0.00
5-Jul-18	14.05	13.90	0.00
2-Aug-18	13.60	13.45	0.00
20-Sep-18	14.20	14.05	0.00
4-Oct-18	14.30	14.15	(0.05)
1-Nov-18	13.90	13.75	0.00
3-Jan-19	13.80	13.65	0.10

Source: Zedcrest Dealing Desk

Money Market
The OBB and OVN rates jumped higher to 18.40% and 19.33%, following debits for the OMO and wholesale FX sales by the CBN. System Liquidity is consequently estimated to close on a marginally negative note. We expect rates to however moderate slightly tomorrow, as there are no expected significant funding pressures on the banks

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	18.40	11.60
Overnight (O/N)	19.33	12.17

Source: Zedcrest Dealing Desk

FX Market

The CBN Official spot rate depreciated by 0.02% to N305.80/$ from its previous day rate of N305.75/$. This was despite the CBN’s intervention in the wholesale, SME and Invisibles segment of the market to the tune of $210m est. The CBN’s external reserves is recorded to have improved by 1.74% to $40.79bn as at 2^nd of February, 2018.

The spot rate in the Investors and Exporters’ FX Window appreciated by 0.12% to close at N360.25/$ from N360.70/$.

Rates in the Unofficial market remained stable at N361.60/$