Anchoria Fixed Income Monitor: Bearish Sentiment In Bond Market

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Monday, December 07, 2020 03:02 PM / By Anochoria AM Research / Header Image Credit: US News Money

 

Money Market

In the Interbank space, overnight (OVN) rate expanded by 2.75% w/w to 4.25%. The rate remained low at the beginning of the week due to inflows from OMO maturities (N341.10 billion) into the system and FX retail refunds that saturated the market. The eventual expansion of the rates was caused by debits for CRR and CBN's weekly auctions at the latter part of the week.

 

We expect buoyancy in system liquidity during the week barring any liquidity mop-up by the Central Bank.

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Forex: USD/NGN

Nigeria's FX reserve declined further, as the gross reserves position declined by $115.83 million w/w to $35.30 billion. This may be attributable to the outflows resulting from CBN's weekly intervention across the various FX windows. At the Investors & Exporters (I&E) window, the Naira depreciated further as it weakened by 1.22% to close at N395.00/$ compared to N390.25/$ the previous week.

 

Conversely, pressure on the Naira eased in the parallel market (+3.06% to N475/$) following the CBN's announcement that it would allow beneficiaries of remittances to be paid in dollars, a measure introduced to increase the supply of dollars to BDCs across the Country. The CBN's official rate retained at N379/$ w/w.

 

Expectations remain positive for the naira as the Central Bank continues to carry out measures aimed to stabilize and unify the exchange rate.

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Bond: FGN

The secondary sovereign Bond market closed bearish last week as the average yield rose by 20bps to close at 4.09% compared to 3.88% in the previous week. The highest yield decline was seen in the MAR-2025 which contracted by 44bps to close at 1.26% while the highest yield increase was witnessed in the APR-2029 bond which rose by 75bps to close at 4.91% compared to 4.15% the previous week. The bearish sentiment may be attributable to decline in daily demand due to low yields available.

 

The sovereign Eurobond market closed bullish as the yields fell by 29bps to close at 5.52% compared to 5.80% the previous week. In the same vein, the corporate Eurobond market closed bullish as the yields fell by 37bps to close at 5.87% compared to 6.24% the previous week. The bullish activities in the Eurobond market dwells on the news of the improvement in the development of the COVID-19 vaccine and the relative stability in the oil market

               

We expect to see sustained demand in the Bond market as investors continue to re-invest their maturities while retaining a cautionary approach in the market.

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Treasury Bills

The Treasury bills market closed bullish last week as the average yield rose by 2bps to close at 0.13% compared to 0.10% the previous week. Similarly, average yield on OMO bills fell by 0.07% to close at 0.18% compared to 0.10% the previous week.

 

We expect decreased demand for T-bills considering the rock bottom yields.

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Commodities

Brent oil closed at $48.27 per barrel compared to $45.24 per barrel the previous week. Similarly, WTI rose by 8.02% to close at $45.53/barrel.


According to Bloomberg, OPEC+ reached a compromise agreement to start adding 500,000 barrel per day (bpd) to total production beginning in January as a means of bridging widening gaps between members of the cartel. However, the outlook for oil demand remains uncertain despite potential good news about COVID-19 vaccines that pushed oil prices closer to $50 a barrel, an amount that hasn't been witnessed since the start of the year.


Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

 

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


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