Inflation Comes Out Higher Than Expected at 16.47%, Bond Yields React Negatively

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Wednesday, February 17, 2021, / 7:58 PM / by Zedcrest Capital /Header Image Credit: Getty Images


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FGN Bonds

Yields across the FGN Bonds curve weakened further for another consecutive off the back of higher inflation figures as well as increased borrowing pressure on the DMO as it outlined plans to convert the ways & means funding from the CBN into long term funding. Bids weakened across the benchmark curve at the open of trading, as the market resumed to higher-than-expected increase inflation (aggregate expectations stood at 16.20%), and remained there for the rest of the session. Yields expanded further by c.24bps on the average across the benchmark curve at the close of trading.

 

With the monthly bond auction finally upon us, we expect another dull trading session as market participants focus on the DMO's response to already elevated yields (8-month highs).

FGN Bonds Primary Auction Expectation - February 17, 2021

Tenor

Offer (N'bn)

Expected Stop Rate (%)

Previous Stop Rate (%)

Mar-27

50.00

10.00 - 10.35

7.98

Mar-35

50.00

10.55 - 11.00

8.740

Jul-45

50.00

10.50 - 11.15

8.950

 

Benchmark FGN Bonds

 

Description

Bid (%)

Offer (%)

Day Change (%)

12.75 27-Apr-23

8.16

6.74

0.00

14.20 14-Mar-24

9.58

7.68

0.58

13.53 23-Mar-25

10.25

8.41

0.78

12.50 22-Jan-26

10.28

9.64

0.00

16.29 17-Mar-27

10.79

10.15

0.00

13.98 23-Feb-28

11.06

10.27

0.25

14.55 26-Apr-29

11.13

10.31

0.33

12.15 18-Jul-34

11.15

10.70

0.15

12.50 27-Mar-35

11.35

10.50

0.05

12.40 18-Mar-36

11.28

10.65

0.13

16.2499 18-Apr-37

11.23

10.72

0.10

9.80 24-Jul-45

11.65

11.00

0.15

14.80 26-Apr-49

11.64

11.15

0.38

12.98 27-Mar-50

11.65

11.20

0.43

 

Treasury Bills

Secondary market activity for Treasury Bills picked up some steam, following liquidity injection via OMO maturities of N208Bn driving improved demand from local banks. We noted mid-date securities (Aug. 2021 maturities) trading at 8.60% levels, while long-dated bills (Feb. 2022s maturities) traded around 9.55%. Rates across the benchmark curve remained unchanged at the close of the trading session.

 

We expect a slowdown in demand for OMO bills from local banks, as they look to the CBN for the supply of better rates at the primary auction expected later in the week.


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Benchmark OMO Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NGOMOB 0 03/02/21

7.00

0.03

0.00

NGOMOB 0 05/11/21

7.50

0.03

0.00

NGOMOB 0 06/08/21

8.25

0.04

0.00

NGOMOB 0 08/10/21

8.25

0.04

0.00

NGOMOB 0 09/07/21

9.00

0.04

0.00

NGOMOB 0 10/19/21

10.00

0.05

0.00

NGOMOB 0 11/02/21

10.50

0.05

0.00

NGOMOB 0 12/07/21

10.50

0.05

0.00

NGOMOB 0 01/13//22

10.50

0.05

0.00

 

Benchmark NT-Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NIGTB 0 02/11/21

6.50

0.03

0.00

NIGTB 0 03/11/21

6.50

0.03

0.00

NIGTB 0 04/29/21

6.50

0.03

0.00

NIGTB 0 05/13/21

7.00

0.03

0.00

NIGTB 0 06/10/21

7.50

0.04

0.00

NIGTB 0 07/01/21

7.50

0.04

0.00

NIGTB 0 08/26/21

7.50

0.04

0.00

NIGTB 0 09/09/21

8.50

0.04

0.00

NIGTB 0 10/14/21

9.00

0.05

0.00

NIGTB  0 11/11/21

9.50

0.05

0.00

NIGTB  0 01/11/22

9.80

0.05

0.00

 

Money Markets

OMO maturities of N208Bn boosted system liquidity to open at c.N463Bn positive, pushing interbank rates down for another consecutive trading session. OBB and OVN rates dropped by an average of 150bps, to close at 2.50% and 2.75% respectively.

 

We expect funding rates to oscillate in tandem with the available system liquidity in the short term, with OMO and FGN Bond auction debits expected to squeeze on available liquidity later in the week.

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

2.50

4.00

Overnight (O/N)

2.75

4.25

 

FX Market

Volumes traded in the I&E FX window went up by 8% with $30.44mio changing hands D/D, while the Naira remained stable to close at N409.67/$ for the second day in a row. Intraday, rates ranged between a low of N390.00/$ and a high of N410.00/$.

 

The Naira appreciated at the parallel market by N1.00K boosted by the FX supply from weekly collections by the BDCs from the Apex bank. Cash rates closed at N473.00/$, while the transfer rates remained unchanged at N489.00/$.

FX Market

Current (N/$)

Previous (N/$)

CBN Spot

379.00

379.00

CBN SMIS

380.69

380.69

I&E FX Window

409.67

409.67

Cash Market

473.00

474.00

Transfer Market

489.00

489.00

 


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Eurobonds

It was a typical bearish session in the NIGERIA Sovereigns, with some profit-taking action seen, especially on the mid- and long-end causing yields to expand slightly by c.3bps on the average across the sovereign curve. Generally, yields across the SSA space suffered the effect of renewed demand seen on U.S. Treasuries. The Kenyan government's agreement with the IMF on a $2.4Bn loan brought some respite to the space, although short-lived.

 

In contrast to the Sovereign papers, the NIGERIA Corps papers were bullish although still maintaining a tranquil trading session with significant movement seen on the Zenith 2022s and UBANL 2022s papers, which declined by -c.25bps and 16bps D/D respectively.

 

Proshare Nigeria Pvt. Ltd.



Proshare Nigeria Pvt. Ltd.


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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


 

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