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Offshore Selloff Drives FGN Bond Yields Closer to 14%

Bonds & Fixed Income	4005 VIEWS
Bonds & Fixed Income
4005 VIEWS

Thursday, June 21, 2018 / 06:40 PM / Zedcrest Capital

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KEY INDICATORS

Inflation	11.61%	Declined by 0.87% in May from 12.48% in April 2018
MPR	14.00%	Left unchanged at 14.00% at the MPC meeting 0n 4 April 2018
External Reserves	$47.63billion	Rose by 0.42% as at 13 June from $47.43bn as at 7 June 2018
Brent Crude	$75.18pb	Rose by 0.13% from $75.08pb on 19 June 2018

Bonds

Bond yields rose significantly higher by c.20bps, largely driven by offshore selloffs especially on the 2026 and 2037 bonds. We expect the long end of the curve to remain pressured as market players remain significantly risk off on the longer duration bonds. Barring continued offshore selloff, we expect renewed buying interests from local clients on the medium tenured bonds at c.13.50 – 13.70% levels.

FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
16.00 29-Jun-19	12.76	12.23	0.62
15.54 13-Feb-20	12.93	12.80	0.03
14.50 15-Jul-21	13.87	13.43	0.33
16.39 27-Jan-22	13.82	13.22	0.32
14.20 14-Mar-24	13.78	13.29	0.40
12.50 22-Jan-26	14.00	13.57	0.43
16.29 17-Mar-27	13.77	13.51	0.26
13.98 23-Feb-28	13.82	13.35	0.26
12.15 18-Jul-34	13.96	13.58	0.26
12.40 18-Mar-36	13.98	13.65	0.26
16.2499 18-Apr-37	13.93	13.83	0.24

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on a relatively flat note, with yields ticking slightly higher by c.3bps on average. We witnessed relatively weaker subscriptions at the NTB PMA Auction today, which we presume was mostly filled from non-competitive client orders, as market players remain relatively unattracted by the lower PMA rates. The auction stop rates however printed marginally lower by c.20bps on the 91 and 182-day bills, while the 364-day remained unchanged at 11.50% after being undersubscribed by c.N27bn. We expect yields to trend slightly lower tomorrow, as market players look to re-invest c.N377bn Maturing OMO bills.

Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
5-Jul-18	12.00	10.50	0.00
2-Aug-18	13.00	12.00	0.00
13-Sep-18	12.50	12.00	0.00
4-Oct-18	12.30	11.90	0.00
1-Nov-18	12.60	12.00	0.00
6-Dec-18	12.20	11.90	0.00
3-Jan-19	12.25	12.00	0.00
14-Feb-19	12.30	10.00	0.00
14-Mar-19	12.30	10.00	0.00
4-Apr-19	12.30	10.00	0.00

Source: Zedcrest Dealing Desk

Money Market

The OBB and OVN rates rose higher to 12.50% and 14.25%, with system liquidity published lower at c.N200bn from c.N500bn previously. We expect rates to trend slightly lower tomorrow due to the expected inflows from OMO T-bill maturities. We however expect this to be moderated by a further OMO auction by the CBN.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	12.50	9.83
Overnight (O/N)	14.25	10.75

Source: FMDQ, Zedcrest Research

FX Market

The Interbank rate remained stable at its previous rate of N305.85/$. The I&E FX rate appreciated slightly by 0.02% to N361.18/$. In the parallel market, cash rates remained stable at N360.00/$, while the transfer market rate appreciated slightly by 20k to N364.30/$.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	305.85	305.85
CBN SMIS	330.00	330.00
I&E FX Window	361.18	361.25
Cash Market	360.00	360.00
Transfer Market	364.30	364.50

Source: CBN, FMDQ, REXEL BDC

Eurobonds:

The NGERIA Sovereigns recovered slightly from the intense selloff witnessed in the previous session. Yields retraced by c.20bps, having risen by as much as 60bps in the previous session. The 2047s were the most lifted, and are now at c.8.50%, having traded as high as c.8.70% in the previous session

We also witnessed slight recoveries in the NGERIA Corps, with the most buying interests seen on the ACCESS 21s snr, Zenith 22s and FIDBAN 22s. We however witnessed significant selloffs on the FBNNL 20s and slight sell on the DIAMBK 19s, ECOTRA 21s and SEPLLN 23s.