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Funding Pressures Push Lending Rates above 30%, amid Continued Sell off on Bonds

Bonds & Fixed Income	3964 VIEWS
Bonds & Fixed Income
3964 VIEWS

Wednesday, February 7, 2018, 8.00AM/Zedcrest Capital

*** Oil prices fall more than 1 percent amid global market rout***

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	$66.71pb	Fell by 2.34% from $68.37pb on 5^th February 2018

Bonds

The Bond market remained bearish following continued sell by local and offshore players, especially on the 10 and 20yr bonds. We observed the selloff in today’s session to have been triggered initially by some sell from offshore. Yields consequently rose by c.37bps, the highest d/d uptick in yields witnessed since the 15th of December 2017 (when the CBN released its Q1 2018 NTB calendar). We do not expect a significant rise in yields above current levels, as market players anticipate favorable results from domestic inflation and GDP figures to be published later in the month. We however note that demand in the market remains relatively weak at the moment.

Benchmark FGN Bond Yields
Description	Bid (%)	Offer (%)	Day Change (%)
16.00 29-Jun-19	14.20	14.13	0.28
15.54 13-Feb-20	13.92	13.85	0.28
14.50 15-Jul-21	13.93	13.86	0.56
16.39 27-Jan-22	13.66	13.59	0.44
14.20 14-Mar-24	13.72	13.65	0.23
12.50 22-Jan-26	14.09	14.02	0.60
16.29 17-Mar-27	13.76	13.69	0.22
12.15 18-Jul-34	13.86	13.79	0.36
12.40 18-Mar-36	13.78	13.71	0.37
16.25 18-Apr-37	13.78	13.71	0.37

Source: Zedcrest Dealing Desk

Treasury Bills
The T-bills market also traded on bearish note with some selloff witnessed especially on the short tenured bills due to the squeeze in market liquidity which is estimated to close today on a marginally positive note. Average T-bill Yields consequently rose by c.33bps, even as the CBN sold N21bn of the 191-day OMO bill offered, at 14.40%. We expect slight retracements in yields as market players anticipate inflows from OMO maturities on Thursday.

Benchmark Treasury Bills Rates
Description	Bid (%)	Offer (%)	Day Change (%)
1-Mar-18	14.40	14.25	1.90
5-Apr-18	15.00	14.85	1.45
3-May-18	13.85	13.70	0.45
14-Jun-18	14.60	14.45	0.30
5-Jul-18	14.05	13.90	0.00
2-Aug-18	14.20	13.45	0.60
20-Sep-18	14.50	14.35	0.30
4-Oct-18	14.40	14.25	0.10
1-Nov-18	14.40	14.25	0.50
3-Jan-19	13.90	13.75	0.10

Source: Zedcrest Dealing Desk

Money Market
The OBB and OVN rates spiked to 35.80% and 37.42% as the CBN mandated banks with balances at the SLF window to fund their positions or risk having their bills rediscounted. This put further pressure on market which opened at just c.N20bn positive. We expect rates to be relatively stable at these levels tomorrow, as there are no significant liquidity inflows expected until Thursday.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	35.80	18.40
Overnight (O/N)	37.42	19.33

Source: FMDQ, Zedcrest Research

FX Market

The CBN Official spot rate remained stable at its previous day rate of N305.80/$, with external reserves 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 depreciated marginally by 0.02% to close at N360.31/$ from N360.25/$.

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