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DMO to Offer c.N400bn of FGN Bonds in Q1 2019

Bonds & Fixed Income	3404 VIEWS
Bonds & Fixed Income
3404 VIEWS

Wednesday, January 24, 2018/ 09:00AM / Zedcrest Capital

***VAT will be increased in 2019*** - Finance Minister

KEY INDICATORS

Indicator	Value	Commentary
Inflation	11.44%	As at January 16, 2019. A c.16bps increase from 11.28% recorded in November 2018
MPR	14.00%	MPC Meeting to be held on the 21^st and 22^nd of January 2019
External Reserves	$43.12bn	As at January 22, 2019. A c.0.01% decrease from $43.13bn on January 21, 2019
Brent Crude	$60.69pb	As at January 23, 2019. A c.1.51% decrease from $61.62pb on January 22, 2018

Bonds

The Bond market traded on a relatively flat note, with yields compressing marginally by c.1bp on the day following slight interests on some mid tenors.

The DMO has released the Q1 FGN bond Calendar, with N150bn on offer at the auction scheduled for the 30th of January. Given the sizeable volumes of bonds on offer, we expect yields to trend progressively higher towards the auction, as demand interests’ wane.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
15.54 13-Feb-20	15.51	14.98	0.00
14.50 15-Jul-21	15.50	15.19	0.00
16.39 27-Jan-22	15.03	14.78	(0.04)
14.20 14-Mar-24	15.12	14.93	(0.01)
12.50 22-Jan-26	15.33	15.15	(0.03)
16.29 17-Mar-27	15.22	15.06	(0.02)
13.98 23-Feb-28	15.42	15.22	0.03
12.15 18-Jul-34	15.39	15.05	(0.01)
12.40 18-Mar-36	15.21	15.11	0.02
16.2499 18-Apr-37	15.26	14.97	(0.01)

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market remained bullish, with yields compressing further by c.20bps following continued interests by market players around the short and mid tenors (Feb – Jul). The long end of the curve however traded flat on the back of the continued OMO interventions by the CBN. The CBN sold a total of c.N65bn at today’s OMO auction, with c.77% of the total demand skewed towards the long tenor (19-Dec) and rates maintained across all tenors.

We expect yields to remain relatively stable, with slight pressures expected on the longer end of the curve as the CBN is expected to float a sizeable OMO auction to mop up c.N383bn OMO maturities tomorrow.

Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
14-Feb-19	14.05	13.50	0.00
14-Mar-19	14.05	12.00	0.00
4-Apr-19	14.05	13.40	0.00
2-May-19	12.90	12.50	(0.10)
13-Jun-19	13.30	13.00	0.10
18-Jul-19	13.50	13.30	0.30
1-Aug-19	13.75	13.55	(0.75)
12-Sep-19	14.90	14.25	0.00
3-Oct-19	14.90	14.50	(0.10)
14-Nov-19	14.70	14.45	(0.15)
5-Dec-19	14.90	14.65	0.00

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market moderated slightly by c.2pct on the back of the slightly improved system liquidity levels currently estimated at c.N30bn positive.

We expect funding rates to moderate further tomorrow, with inflows from OMO maturities expected to further bolster system liquidity levels. This should however be moderated by an expected sizeable OMO sale by the CBN.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	15.00	17.50
Overnight (O/N)	15.67	19.08

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate remained unchanged at N306.80/$ (spot) and N357.97/$ (SMIS). The NAFEX rate in the I&E window depreciated marginally by c.0.04% to N362.58/$, while total traded volumes plunged by c.73% to c.$91m. Cash and transfer rates in the parallel market also depreciated by c.0.14% to N361.80/$ and N365.50/$ respectively.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	306.80	306.80
CBN SMIS	357.97	357.97
I&E FX Window	362.58	362.42
Cash Market	361.80	361.30
Transfer Market	365.50	365.00

Source: CBN, FMDQ, REXEL BDC

Eurobonds

The NGERIA Sovereigns traded on a bullish note, with yields compressing by c.9bps, with demand mostly on the 2032s and 2047s which compressed by c.12bps on the day.

The NGERIA Corps were relatively quiet, with bids weaker on the DIAMBK 19s and demand still firm on the SEPLLN 23s.

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