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Nigerian Eurobonds Maintain Strong Rally as Global Central Banks Turn Dovish

Bonds & Fixed Income	2951 VIEWS
Bonds & Fixed Income
2951 VIEWS

Thursday, June 20, 2019 / 8:00PM / Zedcrest Capital

The NGERIA Sovereigns posted significant gains in today’s session, with most tickers gaining as much as 2.5pct from their previous closing prices. This came on the back of the dovish leaning amongst major central banks and optimism on resolution of US-China trade tensions.

Below are highlights from activities in the fixed income and forex market today.

Bonds

The FGN Bond market remained relatively stable, with yields compressing marginally by c.4bps following some demand mostly on the short end of the curve. We also witnessed slight demand interests on the 28s and 36s during the session, whilst there were better sellers of the 34s.

Despite expectations for renewed supply of bonds at the auction next week, we expect yields to remain relatively stable as moderately dovish sentiments and declining bond yields in developed markets are expected to support demand for higher yields in emerging markets.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
14.50 15-Jul-21	14.31	13.92	0.00
16.39 27-Jan-22	14.19	13.89	(0.35)
12.75 27-Apr-23	14.66	14.35	0.01
14.20 14-Mar-24	14.48	14.09	(0.03)
13.53 23-Mar-25	14.59	14.30	(0.02)
12.50 22-Jan-26	14.67	14.54	0.00
16.29 17-Mar-27	14.65	14.40	0.06
13.98 23-Feb-28	14.55	14.46	(0.11)
12.15 18-Jul-34	14.73	14.54	0.03
12.40 18-Mar-36	14.63	14.56	(0.02)
16.2499 18-Apr-37	14.65	14.49	(0.06)

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on a relatively flat note despite the inflows from OMO maturities. We witnessed slight demand on the short end (Jul- Sep), whilst there were better sellers on the mid tenors (Feb/Mar). Yields were consequently lower by c.3bps on the day.

We expect the market to remain relatively stable in the near term due to the robust system liquidity levels.

Benchmark Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
18-Jul-19	11.25	6.00	(0.25)
1-Aug-19	11.50	6.00	0.00
12-Sep-19	11.30	10.00	(0.45)
3-Oct-19	11.90	11.70	0.10
14-Nov-19	12.15	11.75	0.00
5-Dec-19	12.05	11.80	0.00
2-Jan-20	12.10	11.85	0.00
6-Feb-20	12.25	12.00	0.10
19-Mar-20	12.25	12.00	0.05
2-Apr-20	12.20	11.95	0.05
14-May-20	12.20	11.95	0.05
04-Jun-20	12.20	12.00	0.00

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market moderated further by c.3bps as inflows from OMO maturities bolstered system liquidity higher. The OBB and OVN rates consequently ended the session at 4.43% and 5.00%, with system liquidity currently estimated at c.N260bn.

We expect rates to close the week on a stable note, as there are significant outflows anticipated.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	4.43	6.86
Overnight (O/N)	5.00	7.50

Source: FMDQ, Zedcrest Research

FX Market

At the interbank, the Naira/USD rate remained stable to close at N306.95/$ (spot) and N356.92/$ (SMIS), whilst the NAFEX rate at the I&E window closed slightly higher at N360.69/$. At the parallel market, the cash and transfer rates closed unchanged at N359.80/$ and N362.50/$ respectively.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	306.95	306.95
CBN SMIS	356.92	356.92
I&E FX Window	360.69	360.53
Cash Market	359.80	359.80
Transfer Market	362.50	362.50

Source: CBN, FMDQ, REXEL BDC

Eurobonds

Investors’ demand were markedly higher in the NGERIA corps space, with the most interest on the FIDBAN 22s and ETINL 24s which gained as much as 1pct on the day. This came on the back of anticipated inflows from the announced call on the $400m ACCESS 2021s Subordinated Eurobonds.

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