Yield Dropped Opening The Week As Unmet Sukuk Demand Chased Benchmark Bonds

Monday, June 16, 2020 / 7:56 PM / By Zedcrest Capital / Header Image Credit: Juridica

FGN Bonds

The Bond Market opened the week with sustained interest seen across some of the benchmark bonds, in the aftermath of the release of the FGN Sukuk auction results which showed the heavy demand still unmet. The DMO released the circular detailing the outcome of the SUKUK auction, slated to settle tomorrow June 16, 2020, and was heavily subscribed as expected with a total subscription of N669BN while only 162.6BN was allotted to investors (4.11X bid-to-cover ratio).

Demand remained tilted towards the mid- (2028s and 2029s) and longer-dated papers (2034s and 2049s), as local investors continued to bargain-hunt for these select maturities. Consequently, yields compressed by an average of c.15bps across the benchmark bond curve.

We expect market activity to soften in tomorrow's session, as the market shifts its focus to bond auction scheduled for later this week.

Treasury Bills

The T-bills market opened on a quiet note, with quotes one-sided for the most part of the trading session. Market participants were mostly active sellers, although we saw a few bids pop up for some selected papers (Dec. and Feb. bills). Trades remained difficult to seal trades as bid/offer spreads remained wide across the OMO curve.

The NTB market was also less active, with very few trades passed. We noted few axes for the newly issued 1year paper offered at 3.20%.

We expect the bills space to remain a bit choppy, primarily driven by the levels of excess system liquidity available to local banks. 

Money Markets

Interbank rates continued to drop, plunging by an average c.296bps to open the week. System liquidity opened at c.N194.69BN positive, and with no significant funding pressures on the day, interbank rates closed the day in the single-digit corridor for OBB and OVN rates at 5.83% and 6.92% respectively.

We expect the low rate levels to reverse tomorrow due to the Sukuk debit of N162.6BN projected to hit the interbank market.

FX Market

Transaction volumes remained very weak in the I&E FX window, with very low volumes (c. $14.29M) passing through the market causing the Naira to depreciate by N0.75k. Most banks remained bided for the most part of the trading session between N383.00/$ and N387.00/$. All other market remained stable for a second consecutive trading day.

Eurobonds

The NGERIA Sovereign tickers continued its bearish trend in the new week, as oil prices continued to drop due to oversupply concerns after it was announced that a trio of Gulf producers would end voluntary output cuts. We noted better offers shown across the sovereign curve, causing yields to expand by c.34bps across the sovereign yield curve.

The NGERIA Corps tickers traded in a similar pattern, albeit very few sellers. The Zenith 2022s was the major loser amongst the tracked papers, expanding by c.22bps by the close of the day.

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