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Bond Market Turns Bearish as Selloffs Persist

Bonds & Fixed Income	3593 VIEWS
Bonds & Fixed Income
3593 VIEWS

Thursday, April 04, 2019 07:25 PM /Zedcrest Capital

***DMO to Issue 30-Year Naira Bonds This Quarter *** - Oniha

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	$44.68bn	As at April 3, 2019. A c.0.09% increase from $44.65bn on April 2, 2019
Brent Crude	$69.97pb	As at April 4, 2019. A c.0.94% increase from $69.32pb on April 3, 2019

Bonds

The FGN Bond market turned significantly bearish in today’s session, with yields trending higher by c.23bps on the day and consequently breaking above the 14.50% resistance point to close at an average of 14.68% on the bid. The most selloff remained on the 2028s which traded at a high of 14.65%.

The bearish sentiments could be largely linked to relatively weak demand interests and the news on the issuance of a new 30-year bond this quarter by the DMO.

We expect yields to remain slightly pressured, but with some bargain hunting expected at current levels.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
14.50 15-Jul-21	14.87	14.31	0.14
16.39 27-Jan-22	14.55	14.03	0.28
12.75 27-Apr-23	14.76	14.14	0.42
14.20 14-Mar-24	14.51	14.16	0.17
13.53 23-Mar-25	14.82	14.42	0.27
12.50 22-Jan-26	14.79	14.50	0.17
16.29 17-Mar-27	14.70	14.53	0.25
13.98 23-Feb-28	14.77	14.62	0.19
12.15 18-Jul-34	14.62	14.47	0.19
12.40 18-Mar-36	14.59	14.47	0.24
16.2499 18-Apr-37	14.50	14.30	0.17

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on a relatively flat note, as the CBN intervened in the market via a further OMO sale (c.N200bn) across the 203 and 364-day tenors offered. Stop rates were maintained at 13.04% on the longer tenor, whilst they compressed by 5bps to 12.95% on the medium tenor.

We expect yields to remain elevated in the secondary market, owing to the relatively tight system liquidity level from the significant OMO sale today and the anticipated retail FX funding for tomorrow.

Benchmark Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
4-Apr-19	9.90	9.65	(0.60)
2-May-19	12.25	11.80	0.00
13-Jun-19	12.00	11.50	0.00
18-Jul-19	12.25	12.00	0.00
1-Aug-19	13.15	12.90	0.05
12-Sep-19	13.10	13.00	0.05
3-Oct-19	13.15	13.05	(0.10)
14-Nov-19	13.20	12.95	0.10
5-Dec-19	13.25	13.00	0.15
2-Jan-20	13.10	12.95	0.00
6-Feb-20	9.90	9.65	(0.60)

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market rose higher by c.3pct, as the CBN drained system liquidity via a significant OMO sale today. The OBB and OVN rates consequently ended the session at 19.71% and 20.86% respectively.

We expect rates to remain elevated tomorrow, as banks provide funding for the CBN’s bi-weekly retail FX auction.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	19.71	16.71
Overnight (O/N)	20.86	17.50

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate was unchanged at N307.00/$ (spot) and N355.78/$ (SMIS). The NAFEX closing rate in the I&E window however appreciated by 0.07% to N360.30/$, whilst market turnover remained slightly lower at $119m. At the parallel market, the cash rate appreciated by 0.03% to N358.60/$ whilst the transfer rate remained unchanged at N364.00/$.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	307.00	307.00
CBN SMIS	355.78	355.78
I&E FX Window	360.30	360.55
Cash Market	358.60	358.70
Transfer Market	364.00	364.00

Source: CBN, FMDQ, REXEL BDC

Eurobonds

The NGERIA Sovereigns were slightly bearish, with yields marginally higher by c.4bps on the day, on the back of some more profit taking, especially on the long end of the curve.

In the NGERIA Corps, Investors remained slightly bullish on the 2022 maturities.

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