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Bond Market Trades Flat, Despite Significant Cut in Auction Rates

Bonds & Fixed Income	3507 VIEWS
Bonds & Fixed Income
3507 VIEWS

Thursday, March 28 2019 07:50 PM / Zedcrest Capital

***FG launches Micro Pension Plan for informal sector***

KEY INDICATORS

Indicator	Value	Commentary
Inflation	11.31%	As at March 15, 2019. A c.6bps decline from 11.37% recorded in January 2019
MPR	13.50%	Cut by 50bps to 13.50% at the Mar. 26, 2019 MPC Meeting
External Reserves	$44.14bn	As at March 26, 2019. A c.0.23% increase from $44.04bn on March 25, 2019
Brent Crude	$66.77pb	As at March 29, 2019. A c.0.64% decrease from $67.20pb on March 28, 2019

Bonds

The FGN Bond market traded on a relatively flat note despite the significant cut in stop rates at yesterday’s auction. We witnessed slight demand on the short end of the curve (23s & 24s) countered by some profit taking on the 2028s which trended higher by c.20bps on the day, (having compressed significantly in the previous session). Yields were consequently unchanged on the day, closing at c.14.30% on average.

We expect yields to trend slightly upwards due to the recent profit taking sentiments in the market. We should however witness some renewed demand if the CBN maintains a hold on OMO sales.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
14.50 15-Jul-21	14.47	13.94	0.00
16.39 27-Jan-22	14.41	13.98	0.10
12.75 27-Apr-23	14.12	13.90	(0.08)
14.20 14-Mar-24	14.32	13.91	(0.14)
13.53 23-Mar-25	14.29	14.07	0.04
12.50 22-Jan-26	14.34	14.13	(0.09)
16.29 17-Mar-27	14.35	14.16	0.00
13.98 23-Feb-28	14.30	14.12	0.21
12.15 18-Jul-34	14.24	14.08	(0.09)
12.40 18-Mar-36	14.30	14.05	0.02
16.2499 18-Apr-37	14.23	14.07	0.00

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on a relatively flat note, even as the CBN held of on OMO despite the c.N60bn in OMO T-bill maturities today.

Market players anticipate a renewed OMO auction by the CBN tomorrow, due to expected inflows from FAAC payments. We expect the market to trade slightly bearish if this occurs.

Benchmark Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
4-Apr-19	11.50	5.00	0.00
2-May-19	11.00	9.00	0.00
13-Jun-19	12.00	11.00	0.00
18-Jul-19	12.20	11.30	0.00
1-Aug-19	12.10	11.85	(0.10)
12-Sep-19	13.25	13.00	0.05
3-Oct-19	13.10	13.00	0.05
14-Nov-19	13.20	13.10	(0.20)
5-Dec-19	13.15	12.90	0.05
2-Jan-20	13.10	13.05	0.00
6-Feb-20	13.05	12.95	0.00

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market declined by c.5pct as inflows from retail FX refunds bolstered system liquidity which opened the day at c.N80bn positive. The OBB and OVN rates consequently ended the session at 10.07% and 10.71% respectively.

We expect rates to trend slightly higher tomorrow, due to expected outflows for Bond auction debits, a possible OMO sale and Retail FX provisioning by banks.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	10.07	15.14
Overnight (O/N)	10.71	15.50

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate remained unchanged at N306.95/$ (spot) and N355.78/$ (SMIS). The NAFEX closing rate in the I&E window depreciated further by 0.03% to N360.80/$, whilst market turnover improved by 74% to $203m. At the parallel market, the cash rates depreciated further by 0.03% to N358.30/$ whilst the transfer rate remained unchanged at N364.00/$ respectively.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	306.95	306.95
CBN SMIS	355.78	355.78
I&E FX Window	360.80	360.68
Cash Market	358.30	358.20
Transfer Market	364.00	364.00

Source: CBN, FMDQ, REXEL BDC

Eurobonds

The NGERIA Sovereigns remained slightly bearish, with yields higher by c.3bps on the day. Investors however showed renewed interest for duration plays on the longer end of the curve (47s and 49s).

In the NGERIA Corps, we witnessed interests mostly on the DIAMBK 19s and FIDBAN 22s

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