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Funding Rates Moderate as FAAC Inflows Bolster System Liquidity

Bonds & Fixed Income	3556 VIEWS
Bonds & Fixed Income
3556 VIEWS

Tuesday, September 29, 2018/ 06.19PM / Zedcrest Capital

***BPE to raise N300b for 2018 Budget funding*** – Okoh

KEY INDICATORS

Indicator	Value	Commentary
Inflation	11.28%	As at October 16, 2018, 5bps up from 11.23% recorded in August 2018.
MPR	14.00%	Left Unchanged for the 11^th Consecutive Time at the Sept. 25, 2018 MPC Meeting
External Reserves	$42.13bn	As at October 29, 2018. A c.0.35% decrease from $42.28bn on October 26, 2018
Brent Crude	$75.72pb	As at October 29, 2018. A c.2.45% decrease from $77.62pb on October 26, 2018

Bonds

The bond market traded on a relatively flat note, as supply pressures persisted, despite slight interests from clients on some mid and long tenured bonds.

We expect yields to maintain an uptrend, due to weaker client demand post the FGN Bond auction, and the continued uplift in T-bill rates on the long end of the curve.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
15.54 13-Feb-20	14.69	14.16	0.05
14.50 15-Jul-21	15.40	15.05	0.00
16.39 27-Jan-22	14.86	14.39	0.00
14.20 14-Mar-24	15.30	15.02	(0.01)
12.50 22-Jan-26	15.42	15.10	(0.02)
16.29 17-Mar-27	15.44	15.36	(0.06)
13.98 23-Feb-28	15.54	15.43	(0.01)
12.15 18-Jul-34	15.57	15.20	(0.01)
12.40 18-Mar-36	15.41	15.23	0.06
16.2499 18-Apr-37	15.27	15.14	0.00

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market maintained a slightly bullish posture, with yields moderating further by c.5bps on average. This came on the back of inflows from FAAC payments which bolstered system liquidty considerably, with the most interests from market players seen on the Jan – March maturities.

We expect the market to trade on a relatively calmer note in tomorrow’s session, as market players position for the NTB auction, where the CBN intends to rollover a total of c.N145bn in NTB maturities. Rates are expected to clear considerably higher, especially on the 364-day, due to the double hike in OMO stop rates from the last NTB auction.

PMA Expectations – 31 October 2018
Tenor	Offer (N'bn)	Expected Rate (%)	Previous Rate (%)
91 days	9.54	11.00 - 11.20	10.96
182 days	47.71	12.70 - 12.90	12.69
364 days	88.04	14.00 - 14.20	13.45

Source: Zedcrest Research

Benchmark FGN Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
6-Dec-18	12.90	12.55	(0.10)
3-Jan-19	12.90	12.55	(0.35)
14-Feb-19	12.90	12.75	(0.15)
14-Mar-19	12.85	12.65	(0.15)
4-Apr-19	12.95	12.70	0.20
18-Jul-19	13.10	12.55	0.00
1-Aug-19	13.70	13.50	0.00
12-Sep-19	14.15	14.10	(0.20)
3-Oct-19	14.35	14.15	(0.15)

Source: Zedcrest Dealing Desk

Money Market

In line with our expectations, the OBB and OVN rates moderated by c.5pct to 9.50% and 10.33% respectively. This came on the back of inflows from FAAC payments (c.N382bn), estimated to have bolstered system liquidity to c.N490bn from c.N110bn opening today.

We expect rates to remain relatively stable tomorrow, as there are no significant outflows expected.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	9.50	14.83
Overnight (O/N)	10.33	15.50

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate remained stable at N306.60/$ (spot) and N362.82/$ (SMIS). At the I&E FX window, the NAFEX closing rate appreciated further by c.0.07% to N363.32/$ from N363.58/$ previously. Rates were however unchanged at the parallel market segment, with the cash and transfer rates closing at N361.00/$ and N364.00/$ respectively.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	306.60	306.60
CBN SMIS	362.82	362.82
I&E FX Window	363.32	363.58
Cash Market	361.00	361.00
Transfer Market	364.00	364.00

Source: CBN, FMDQ, REXEL BDC

Eurobonds

The NGERIA Sovereigns weakened in today’s session, with yields trending higher by c.7bps. The weakest bonds on the day were the 2038s and 2047s which lost c.0.80pp.

The NGERIA Corps were slightly bullish, with interests seen on the DIAMBK 19s, ACCESS 21s Snr and UBANL 22s. We however saw better sellers on the FBNNL 21s.