Bonds & Fixed Income | |
Bonds & Fixed Income | |
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PROSHARE | |
PROSHARE |
Monday,
December 16, 2019 /2:12 PM / By FBNQuest Research /
Header Image Credit: Eagle Investors
The global picture a
little better
The international landscape has
slightly improved over the past quarter. Talk of global recession is now rarely
heard, and leading equity markets remain in good shape. The US Federal Reserve
has called a halt to its easing and does not see any change in 2020 unless the
external environment deteriorates. Uncertainty still hangs over
US-Chinese trade relations. The mood music changes almost daily although on
balance we see resolution before the US presidential elections in November.
FGN paper very much in
demand
The three rate cuts by the
Fed and its halt to easing have improved EM investor sentiment. (They have also
reinforced the favourable conditions for Eurobond issuance, from which we hope
the FGN will choose to benefit.) Nigeria has a good story to tell foreign
portfolio investors (FPIs) and returns to match, not least for bills issued
within the CBN's open market operations. The main driver of the FGN naira
markets in the past three months, however, has been the large-scale buying by
domestic banks. Yield on NTBs have practically halved.
CBN set on its fx
policies
The monetary policy
committee (MPC) and the CBN like to trumpet the success of their "heterodox" exchange-rate policies. They will only make changes that are unavoidable. Our
oil price expectations and our view of FPI sentiment suggest that they will be
under no such pressure next year. The external buffer in the form of reserves
has diminished but remains adequate.
And MPC set on its
stance
We think that the MPC will
keep its stance on hold next year. It lacks the correct monetary tools to make
an impact and is alert to the needs of FPIs.
Bond yields due for a
correction
In our view, the crashing
of yields, particularly for NTBs, is unsustainable because of the banks' loan-to-deposit ratio requirements. We see FGN bond yields back in a range of
12.25% to 12.75% at the end of Q1 2020.
FGN bond yields and the MPR |
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Source:
FMDQ, FBNQuest Capital Research |
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