Market Players Demand Higher Rates for OMO, as PMA Approaches

Monday, September 10, 2018 /09:26PM / Zedcrest Capital

***FG Shared N3.95tr Revenue with States, LGs in First Half of 2018*** - NEITI

KEY INDICATORS

Bonds

The Bond market traded with mixed sentiments, with continued interests seen especially on the 2027s. The Broader market theme was however bearish, with selloffs witnessed on the longer end of the curve (36s & 37s), which traded as high as 15.51% and 15.47% respectively. Yields were consequently flat on the day, with a marginal decline of c.1bp on average.

We note that the recent resistance in yields has been largely driven by some interests from local clients around the mid-tenured bonds. We expect an imminent reversal to this trend, with yields still expected to maintain an uptrend in view of recent developments in short term rates. We consequently maintain a short biasacross the curve. 

Source: Zedcrest Dealing Desk 

Treasury Bills

Despite the significantly buoyant level of system liquidity, the T-bills market remained significantly bearish with yields trending higher by c.35bps across the curve. This came on the back of continued selloffs across the short and mid-tenured bills, as market players anticipate higher stop rates at the forthcoming Primary Market Auction for T-bills. We consequently witnessed most bids by market players set as high as 13.00% on the short and mid-tenured bills.

The CBN floated an OMO auction to manage the excessive system liquidity levels. This was however met with an apathetic level of demand, with no bids on the 73 and 136 day issues, while market players bided as high as 13% for the 199day issue, with a total subscription of N62.55bn of the N200bn offered. The CBN could however sell only a total of N21.75bn as it maintained its stop rate at 12.50%.

The aforementioned posits strong signals for higher rates in the T-bills market, and we expect this trend to persist, due to expected funding pressures on the part of the DMO, as it looks to raise a total of N136bn T-bills at its forthcoming auction.

Secondary Market Treasury Bills

Source: Zedcrest Dealing Desk

Money Market

The OBB and OVN rates opened the week on a slightly higher note, closing the day at 4.17% and 5.00% respectively. This came on the back of outflows for the CBN’s wholesale FX (c.N75bn) and OMO interventions (N21.75bn). The Net System Liquidity is consequently estimated at c.430bn as at close of business today.

We expect rates to remain moderated, barring a significant OMO sale by the CBN in subsequent sessions.

FX Market

The Naira/USD rate depreciated slightly at the interbank, closing at N306.25/$ from N306.20/$ previously. At the I&E FX window, a total of $586.83mn was traded in 284deals, with rates ranging between N353.00/$ - N364.00/$. The NAFEX closing rate depreciatedfurther by c.0.09% to N363.11/$ from N362.78/$ previously.

At the parallel market, the cash and transfer ratesremained stable to close at N359.40/$ and N361.50/$ respectively.

Source: CBN, FMDQ, REXEL BDC 

Eurobonds

Gains in the NGERIA Sovereigns flattened out in today’s session, with yields advancing by c.4bps across the curve. Investors were slightly bearish on the short to mid end of the curve which lost about 0.30pct on average.

The NGERIA Corpswere conversely bullish, with renewed interests seen on the GRTBNL 18s, DIAMBK 19s and FBNNL 21s. Investors were however slightly bearish on the UBANL 22s, while the SEPLLN 23s marked some gains on the longer end. 

Related News

1.       CBN Raises OMO Stop Rates, Succumbs to Investor Pressure PMA Holds this Wednesday

2.       Average T-Bills Yield Rose by 15bps to Close the Week at 12.36%

3.       Yields Trend Higher following Hike in CBN OMO Stop Rate

4.       Central Bank makes a U-turn, raises rate to 12.50% for the 182days OMO Bills

5.       System Liquidity support bullish interests in the Fixed Income Markets

6.       External Factors Propel Yields to New Frontiers

7.       Central Bank defies expectations, maintains rates at OMO auction

8.       Bearish Sentiments Persist in Bond Market, amid Bargain Hunting by Local RMCs

9.       Money Market Rate Decreased Marginally Last Week as Overnight Rate Fell to 6.83%

10.   September 2018 FGN Savings Bond Offer for Subscription

11.   Bond Market Closes the Month Bearish as EM Pressures Persist

12.   Bond Yields Hit 9-Month High as CBN holds off on OMO Sale

13.   Bond Yields to Break 15% Resistance, as DMO Clears 1yr PMA Bill at c.15% Effective Yield