Bonds & Fixed Income | |
Bonds & Fixed Income | |
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Thursday, October
19, 2017 11:48 AM /FBNCapital
Research
Over to the FGN to clear up the mess: The monetary
policy committee has not shifted its stance for more than 12 months, arguing in
layman’s language that it did not create the mess in the macroeconomy and is
not therefore responsible for clearing it up. It is adamant that the FGN now
has to step up to the plate. If its communiques and personal statements do have
one common theme, it is that the committee has its eye on fighting inflation.
Finally, some easing ahead: We
see lower inflation in 2018 on the easing of supply-side constraints and
positive base effects. This could bring modest rate cuts totaling 150bps from
the MPC.
Gathering momentum of MCP: The CBN’s adoption of multiple
currency practices (MCP), and NAFEX in particular, has defied all expectations,
including its own we suspect. Offshore players have returned to local
markets for equities and debt: manufacturers have their imported inputs;
reserves are rising towards US$40bn; and the CBN has little need to supply
NAFEX. The authorities are under no domestic pressure to abandon MCP. They
clearly benefit from the official/interbank rate for favoured transactions.
Job done yet more for the DMO to do: The DMO has
already met its funding target for the year but may have to cover an overshoot
in the FGN deficit in the naira market. Yet the planned debt refinancing, the
return to the Eurobond market and the broader shift to a focus on external
borrowing from 2018 together provide an attractive investment case for FGN
paper in local currency.
Room for a little more yield narrowing: These factors
plus the healthy bid from the PFAs point to further gentle narrowing of FGN
bond yields over the next quarter. Assuming that the CBN guides rates down
cautiously, we see a range of 14.00% to 14.50%.
Related
News
2. We See Headline Rate at 15.9% in October 2017 – FBNQuest
3. Inflation Flattens Out in September to 15.98%
4. Another Sticky Movement in General Price Levels
5. Annual Inflation Flat Despite Hefty Monthly Decline
6. CPI Drops to 15.98% in Sept 2017, 0.03% Lower Than 16.01%
August Rate
7. Evaluating The Adequacy of Nigeria’s External Reserves
Level
8. The Need to Invest in Nigeria's Infrastructure
9. Lower Current-Account Surplus due to MCP
10. FBN Merchant Bank Partners with NESG at the 23rd Nigerian
Economic Summit
11. Credit Allocation to Favour the Few