Demand Pressures Force c.50bps Rally on 2024 FGN Bond

Tuesday, December 25, 2018/ 05:00AM / Zedcrest Capital

***MTN to pay $53m as settlement for CBN CCI dispute***

KEY INDICATORS

Bonds

A rally on the 2024 FGN Bond today which compressed by c.50bps on the day caused yields to compress marginally by c.6bps on average. This was despite the relatively lacklustre trading observed on other maturities which were much unchanged on the day. We also witnessed slight interests on the 2028 bond following the dearth of offers post the FGN Bond auction on the maturity.

We remain cautious on the FGN Bond market going into the New Year, with expectations of a further uptrend in yields, in tune with our expectation for renewed FGN borrowings by the DMO. We believe that if yields compress significantly in the near term due to supply factors, it would be wise to go short on the market.

Source: Zedcrest Dealing Desk 

Treasury Bills

With the moderation in funding rates coming on the back of FAAC inflows into the system, market players became slightly more active on the shorter date securities, with some bargain hunting for higher yields on the short tenors. This consequently compressed yields by c.6bps on average.

The CBN also intervened in the market via an OMO auction which was met with weak subscriptions, with a total sale of c.N40bn of the N300bn offered, as market players showed preference for the more attractive yields in the secondary market.

We expect yields to remain relatively stable with inflows of c.N589bn expected from OMO maturities on Thursday, and with the CBN also expected maintain its aggressive stance on system liquidity.

Source: Zedcrest Dealing Desk

Money Market

Rates in the Money market moderated by c.10pct, with the OBB and OVN rates closing the day at 12.67% and 13.75% respectively. This came as system liquidity was significantly bolstered by inflows from FAAC payments in the previous session to c.N270bn positive opening the day.

We expect rates to remain moderated into the New Year, with inflows from OMO maturities expected to further bolster system liquidity.

Source: FMDQ, Zedcrest Research 

FX Market

At the Interbank, the Naira/USD rate remained unchanged at N306.95/$ (spot) and N359.24/$ (SMIS), while the NAFEX rate in the I&E window appreciated further by c.0.05% to N364.34/$ from N364.54/$ previously. Value traded at the I&E FX window decreased by c.69.13% day-on-day, with a total trade turnover of $133.50mm traded in 334 deals, with rates ranging between N361.00/$ - N365.50/$.

Seasonal supply support the continued appreciation of the Naira at the parallel market, with the cash and transfer rates appreciating further by c.0.36% and 0.54% to N361.50/$ and N365.00/$ respectively.

Source: CBN, FMDQ, REXEL BDC

Eurobonds

The NGERIA Sovereigns remained relatively stable, with only slight sell witnessed on some long tenured maturities, which rose by c.3-4bps on the day.

The NGERIA Corps were also scantily traded, with slight interests on the ACCESS and FBNNL 21s.

Related News 

1.       Money Market Rate Decreased As Overnight Rate Fell to 25.08%

2.       Markets Close on a Quiet Note as Tight System Liquidity pushes Funding Rates Higher

3.       Investors Look To Secondary Market To Fill Unmet Demand At Previous Day’s Auction

4.       Summary of December 2018 FGN Bond Auction Results

5.       DMO’s Weak Borrowing Appetite Forces 10-yr Auction Rate 33bps Lower

6.       DMO to offer N70bn FGN Bonds tomorrow as N100bn FGN Sukkuk Bond Offer Closes

7.       Diamond Bank Eurobond Rallies 800bps Following Merger Announcement

8.      Average Yields on Long Term Bills Remain at Over 17.0% on Aggressive OMO Mop Ups

9.       Average Market Rate Rose By 0.69% To Settle At 25.89% As CBN Continued Its Liquidity Mop Up

10.   T-Bills Market Ends Bearish as CBN Conducts Special OMO Auction

11.    Funding Rates Moderate, as Market Players Undersubscribe CBN OMO