Bond Yields Trend Lower as CBN Crashes OMO rate by c.200bps

Friday, April 20, 2018 /7:11AM / Zedcrest Capital

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Bonds

The bond market remained significantly bullish with yields compressing by c.27bps, following a significant cut in OMO rates by the CBN. The 27s were the most traded, reaching new lows at 12.83% before retracing slightly to close at 12.90%. Average bond yields have consequently crashed to 12.64%, capping a cumulative decline of 95bps in the past 5 sessions since the recent rally commenced. We expect the market to retrace slightly from its current highs due to expected slowdown in demand ahead of next week’s bond auction.

Treasury Bills

The T-bills market remained significantly bullish, with yields declining further by c.50bps down to 11.90%. This came as market players reacted to the c.200bps cut in OMO stop rate at today’s auction, even as about half of the bids on the 20-Dec were left unsatisfied. We have consequently witnessed most bills from Jul - Apr trading at 12 - 10 discount, while some of the short-tenured May— June bills have begun trading at single digits (10 - 8 discount). We expect the market to remain bullish on the back of the recent OMO auction trends by the CBN.

The OBB and OVN rates inched higher to 4.08% and 4.67%, following a mop up of c.N480bn from the system via today’s OMO auction sale. System liquidity is consequently estimated at c.N450bn as at COB today. We expect rates to remain stable tomorrow, as there are no significant outflows expected.

FX Market

The Interbank rate remained stable at its previous rate of N305.60/$, with the CBN external reserves recorded to have improved by 1.53% to $47.01bn as at 16-April. The NAFEX rate depreciated further by 0.04% to N360.31/$, while rates in the Unofficial market remained stable at N361.20/$.

Eurobonds

The NGERIA Sovereigns were slightly bullish, with demand mostly on the 23s, 27s and 47s which gained +0.40pt on average. We however witnessed slight sell on the 30s and 38s.

The NGERIA Corps were relatively quiet, with slight sell mostly on the ZENITH and FIDBAN 22s.  Investors were however net buyers of the Access 21s and UBANL 22s, while we also witnessed slight improvements in prices on the FBNNL 21s.

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