Bearish Market for Nigerian Sovereign Eurobonds as Oil Price Trades Again Below the $60 Mark

Wednesday, November 28, 2018/ 06:22AM / Zedcrest Capital

KEY INDICATORS

Bonds

Activity picked up in the Bonds market, with mixed sentiments in today’s trading session today. Bargain hunting by local clients dominated late trades across the mid-end of the curve, mostly on the 2027s. Yields consequently compressed by c.1bps to close at 15.46% on the average across the curve.

We expect the market to remain order driven with some client demand expected on the mid- to long-end of the curve. We maintain cautious outlook on bonds in light of weakening economic fundamentals and political uncertainty.

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on a relatively quiet note as market participants prepare for the NTBills PMA scheduled for tomorrow. Yields consequently expanded by c.3bps on the average across the NTB curve, with the short- and long-ends of the curve trading slightly bearish on the day.

The last NTB Auction for the month is scheduled for tomorrow, with 91-, 182- and 364-day maturities on offer. We expect stop rates to remain flat with the maturities on offer already trading close to last stop rates in the secondary market. Please see our forecast below:

Source: Zedcrest Dealing Desk

Money Market

Money Market rates ticked higher as expected today as system liquidity remained relatively tight. The OBB & O/N rates closed at 16.29% (from 15.17%) and 17.21% (from 15.75%) respectively. System liquidity is consequently estimated to close lower at c.N139.24bn positive.

We expect funding rates to trend lower closing the week due to expected FAAC inflows. This is however barring any OMO auction by the CBN.  

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate remained unchanged to close at N306.80/$ (spot) and N359.81/$ (SMIS). At the I&E FX window a total of $134.90bn was traded in 346 deals, with rates ranging between N358.00/$ - N365.50/$. The NAFEX closing rate appreciated by c.0.23% to close at N363.85/$ from N364.70/$ previously.

At the Naira/USD rate depreciated at the parallel market segment, with the cash rate losing c.0.27% to close at N365.00/$ and transfer rates losing c.0.14% to close at N367.00/$ respectively.

Source: CBN, FMDQ, REXEL BDC

Eurobonds

Bad news for NGERIA Sovereign Eurobonds as yields continued to trend northwards due to weak oil prices which trended lower again today to close sub $60. We saw spreads drift wider with little or no volumes traded. Yields expanded by c.23bps on the average across all the tickers on the curve. The major losers on the day were the NGERIA 23s and 25s losing c.30bps and c.32bps respectively. The NGERIA 49s is currently eyeing the double digit mark (now at 9.89%), reflecting weak investor appetite on SSA bonds in general.

NGERIA Corps also had a weak showing on the day, with the Nigerian banks’ papers losing their allure as a safe haven for Eurobond investors.  We witnessed selling interests across the DIAMBK, FIDBAN and ZENITH papers, which lost c.7bps, c.27bps and 64bps respectively.

Related News

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3.           Money Market Rate Decreased Marginally as Overnight Rate Fell to 6.58%

4.          FSDH Research Spots Investment Opportunities in FGN Savings Bonds for Low-Income Earners

5.           Crude Oil prices hit 1-year lows, investor sell-offs hit Eurobonds

6.          Stanbic IBTC - Offer For Subscription Of N30b Series 1 Senior Unsecured Fixed Rate Notes

7.           Monetary Policy Remains Unchanged With Minimal Volatility Expected For The Fixed Income Market

8.          Summary of November 2018 FGN Bond Auction Results