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System Liquidity Falls To Negative Territory Amid Continued OMO Auctions

Bonds & Fixed Income	3858 VIEWS
Bonds & Fixed Income
3858 VIEWS

Tuesday, December 11, 2018/ 05:24PM / Zedcrest Capital

***Nigeria's credit profile constrained by exposure to shocks*** - Moody’s

KEY INDICATORS

Indicator	Value	Commentary
Inflation	11.26%	As at November 21, 2018. A c.2bps down from 11.28% recorded in September 2018
MPR	14.00%	Left Unchanged for the 12^th Consecutive Time at the Nov. 22, 2018 MPC Meeting
External Reserves	$42.60bn	As at December 7, 2018. A c.0.26% increase from $42.49bn on December 5, 2018
Brent Crude	$60.90pb	As at December 11, 2018. A c.0.31% increase from $60.71pb on December 10, 2018

Bonds

Yields in the bond market trended higher by c.5bps in today’s session, with slight sell off mostly on the 2022 and 2024 bonds. Continued OMO interventions by the CBN has continued to weigh on yields on the short end of the curve, and we expect this trend to persist in the near term.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
15.54 13-Feb-20	15.28	14.95	0.00
14.50 15-Jul-21	15.77	15.50	0.08
16.39 27-Jan-22	15.21	14.92	0.20
14.20 14-Mar-24	15.32	15.23	0.15
12.50 22-Jan-26	15.86	15.78	0.02
16.29 17-Mar-27	15.79	15.69	0.01
13.98 23-Feb-28	15.98	15.87	0.01
12.15 18-Jul-34	15.75	15.59	0.00
12.40 18-Mar-36	15.76	15.69	0.00
16.2499 18-Apr-37	15.64	15.50	0.00

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market remained bearish with yields trending higher by c.8bps on average, as market players sold off on some short tenured bills (Dec/Jan) in the wake of a continued OMO intervention by the CBN which further compressed system liquidity further to an estimated net negative position. Of the N100bn T-bills offered by the CBN, market players only bidded for c.N39bn of the 177-day and 268-day bills offered, which were sold at 13.50% and 15.00% respectively.

We expect rates to remain elevated with expectations for continued OMO intervention by the CBN.

Benchmark FGN Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
3-Jan-19	16.00	14.00	1.25
14-Feb-19	14.90	14.25	0.10
14-Mar-19	14.25	13.50	(0.05)
4-Apr-19	14.50	13.50	0.00
2-May-19	13.15	12.90	0.00
18-Jul-19	14.00	12.75	0.00
1-Aug-19	15.00	14.50	0.00
12-Sep-19	15.00	14.90	(0.25)
3-Oct-19	15.10	14.60	0.00
14-Nov-19	15.00	14.75	(0.05)

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market trended c.30bps higher and are now at a 7-month high, with the OBB and OVN rates closing at 65.00% and 70.92%, as the CBN maintained its mop up of system liquidity via a further OMO sale (c.N39bn), which has now pushed system liquidity to a net negative positon of c.N45bn est. as at COB today.

We expect rates to remain elevated, with the CBN expected to maintain its spate of OMO interventions in the market.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	65.00	39.17
Overnight (O/N)	70.92	41.58

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate remained stable at N306.90/$ (spot) and N359.81/$ (SMIS). At the I&E FX window, the NAFEX closing rate depreciated by c.0.05% to close at N365.21/$ from N365.03/$ previously.

At the parallel market, the cash rate depreciated by 40k to N363.40/$, while the transfer rate remained unchanged at N368.00/$.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	306.90	306.90
CBN SMIS	359.16	359.16
I&E FX Window	365.21	365.03
Cash Market	363.40	363.00
Transfer Market	368.00	368.00