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Naira Crashes Below N360 Per Dollar at the Parallel Market as External Reserves Resume Downtrend

Bonds & Fixed Income	5149 VIEWS
Bonds & Fixed Income
5149 VIEWS

Saturday, December 29, 2018/ 07:04AM / Zedcrest Capital

***Manufacturing PMI Expands for 21^st Consecutive Month*** - CBN

KEY INDICATORS

Indicator	Value	Commentary
Inflation	11.28%	As at December 14, 2018. A c.2bps increase from 11.26% recorded in October 2018
MPR	14.00%	Left Unchanged for the 12^th Consecutive Time at the Nov. 22, 2018 MPC Meeting
External Reserves	$43.23bn	As at December 27, 2018. A c.0.14% decrease from $43.29bn on December 24, 2018
Brent Crude	$52.99pb	As at December 24, 2018. A c.0.49% increase from $52.73pb on December 21, 2018

Bonds

Having rallied by c.10bps in the previous session, the Bond market traded on a much calmer note today, with demand on the 2036s compressing yields marginally by c.1bp on average.

We note that the recent rally on the FGN bonds by c.30bps post the December Bond Auction has been largely driven by Institutional client demand, coming on the back of the paltry Bond Auction sale (N5.7bn) by the DMO, given that they had successfully raised c.N100bn earlier via a 7yr Sukuk Bond offering.

Given the aforementioned, we maintain a bearish outlook on bonds at these levels, with expectations for reversal in yields upon release of the Q1 2019 FGN Bond Calendar, which we believe should contain a sizeable amount of Bonds on offer.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
15.54 13-Feb-20	15.13	14.14	0.00
14.50 15-Jul-21	15.35	15.23	(0.25)
16.39 27-Jan-22	15.02	14.43	0.00
14.20 14-Mar-24	14.34	14.20	(0.04)
12.50 22-Jan-26	15.59	15.08	(0.01)
16.29 17-Mar-27	15.45	15.21	0.02
13.98 23-Feb-28	15.62	15.22	0.04
12.15 18-Jul-34	15.49	15.10	0.11
12.40 18-Mar-36	15.51	15.27	(0.02)
16.2499 18-Apr-37	15.49	15.26	0.02

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market remained slightly bearish given the significant OMO Sale (c.N1trn) by the CBN in the previous session. We witnessed the most weakness on the short tenors (Jan – Apr) which rose by c.120bps as market players sought to bolster their year-end cash positions.

We anticipate a relatively quiet trading session tomorrow, as market players wind up activities for the year.

Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
3-Jan-19	17.50	16.50	0.75
14-Feb-19	15.75	14.50	0.75
14-Mar-19	15.50	13.00	1.75
4-Apr-19	14.50	13.00	1.55
2-May-19	15.00	13.25	0.00
13-Jun-19	13.60	13.35	0.00
18-Jul-19	15.00	13.50	1.10
1-Aug-19	14.50	13.50	(0.50)
12-Sep-19	15.00	14.75	0.00
3-Oct-19	15.00	14.20	0.00
14-Nov-19	14.90	14.00	0.15
5-Dec-19	14.95	14.85	(0.05)

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market rose by c.5pct with the OBB and OVN rates closing the day at 17.17% and 18.42%, as the CBN debited banks for the special OMO auction (c.N645bn) conducted yesterday. We consequently estimate system liquidity to drop to a repo of c.N290bn from a positive opening level of c.N355bn.

We expect rates to remain elevated due to the relatively tighter level of system liquidity and possibility for a wholesale FX intervention by the CBN on Monday.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	17.17	12.50
Overnight (O/N)	18.42	13.25

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate remained unchanged at N307.00/$ (spot) and N359.24/$ (SMIS), while the NAFEX rate in the I&E window depreciated by c.0.07% to N364.50/$ from N364.25/$ previously. Value traded at the I&E FX window decreased by c.47.34% day-on-day, with a total trade turnover of $211.48mm traded in 319 deals, with rates ranging between N358.00/$ - N365.50/$.

There was continued appreciation of the Naira at the parallel market, with the cash rate appreciating further by c.0.47% to N359.50/$, while the transfer rate weakened slightly by c.0.14% to N366.00/$.

Having increased consistently from c.$41.52bn on 22-Nov to c.$43.29bn on 24-Dec, (given the accretion from the FGN’s Eurobond’s Issuance), the reserves have now resumed its downtrend posting a c.0.14% decline to c.$43.24bn as at 27-Dec, on the back of the continued FX interventions by the CBN at the Interbank and Parallel Market segments.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	307.00	307.00
CBN SMIS	358.31	359.24
I&E FX Window	364.50	364.25
Cash Market	359.50	361.20
Transfer Market	366.00	365.50

Source: CBN, FMDQ, REXEL BDC

Eurobonds

The NGERIA Sovereigns remained relatively stable, with only slight sell witnessed on some long tenured maturities, which rose by c.2bps on the day.

Investors remained slightly bearish on the NGERIA Corps, with continued selling interests seen mostly on the ACCESS and FBNNL 21s, whereas there were slight interests on the UBANL and FIDBAN 22s.

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