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Sustained decline in Fixed Income yields as Market Players stay bullish

Bonds & Fixed Income	3571 VIEWS
Bonds & Fixed Income
3571 VIEWS

Thursday, November 07, 2017/7.30PM/Zedcrest Capital

KEY INDICATORS

Inflation	15.91%	Declined by 0.07% in October from 15.98% in September 2017
MPR	14.00%	Left unchanged at 14.00% at the MPC meeting of November 2017
External Reserves	$38.20billion	Accreted 9.71% as at 5thDecember from $34.82bn on 29thNovember 2017
Brent Crude	$61.87pb	Remained stable at previous day price of $61.87pb - 6th December 2017

Bonds
The Bond market maintained its bullish run in today’s session with sustained demand witnessed especially on the 5-, 10- and 20-yr bonds. This was as market players continued to speculate a further decline in the sovereign yield curve, owing to the discontinuance of OMO T-bill issuance by the CBN. Average bond yields consequently declined by a further 6bps to close today at 14.45%. We expect this trend to persist, but at a slower pace, as market players are expected to trade cautiously in anticipation of the bond auction next week.

Table 1: Benchmark FGN Bond Yields
Description	Bid (%)	Offer (%)	Day Change (%)
16.00 29-Jun-19	14.49	14.42	(0.05)
15.54 13-Feb-20	14.40	14.33	(0.09)
14.50 15-Jul-21	14.61	14.54	(0.09)
16.39 27-Jan-22	14.35	14.28	0.08
14.20 14-Mar-24	14.60	14.53	(0.03)
12.50 22-Jan-26	14.55	14.48	(0.09)
16.29 17-Mar-27	14.61	14.54	(0.11)
12.15 18-Jul-34	14.31	14.24	(0.07)
12.40 18-Mar-36	14.31	14.24	(0.01)
16.25 18-Apr-37	14.28	14.21	(0.12)

Source: Zedcrest Dealing Desk

Treasury Bills
The T-bills market remained aggressively bullish in today’s session, with rates on most of the medium and long tenured maturities trading below 16% and 15% respectively. Market volumes were however lower than in the previous session as most market players preferred to hold on to their long positions due to the significant decline in supply of T-bills to the market. Average T-bill yields consequently declined by 25bps to close today at 16.56%. We expect the market to be scantily traded tomorrow, but with a sustained decline in yields as market players continue to trade on the “NO OMO” trend.

Table 2: Benchmark Treasury Bills Rates
Description	Bid (%)	Offer (%)	Day Change (%)
4-Jan-18	16.00	15.75	0.00
1-Feb-18	16.00	15.75	(0.50)
1-Mar-18	14.00	13.75	0.00
5-Apr-18	15.45	15.20	(0.15)
3-May-18	15.65	15.40	(0.60)
14-Jun-18	15.50	15.25	(0.25)
5-Jul-18	15.60	15.35	(0.20)
2-Aug-18	15.50	15.25	0.00
20-Sep-18	14.85	14.60	(0.15)
4-Oct-18	14.75	14.50	(0.25)
1-Nov-18	14.25	14.00	(0.75)

Source: Zedcrest Dealing Desk

Money Market
The OBB and OVN rates crashed by 750bps to 6.33% and 7.33% due to c.N110bn OMO maturity inflows which improved system liquidity to c.N100bn long, from a negative opening figure of c.N10bn. We expect rates to remain stable at single digit levels tomorrow, barring any significant OMO T-bill or FX intervention by the CBN.

Table 3: Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	6.33	13.83
Overnight (O/N)	7.33	14.83

Source: FMDQ, Zedcrest Research

FX Market
The CBN Official spot rate appreciated marginally by 0.02% to N306.45/$ from N306.50/$ recorded in the previous session. Rates at the Investors and exporters FX window closed at N360.31/$ from N360.93/$ in the previous session. Rates at the parallel market also appreciated slightly to close at N361.40/$.