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The Nigerian Bond Watch @200212 - DLM


February 20, 2012/ DLM

Key highlights. In our review of the past week, major highlights include the postponement of the FGN bond auction, high treasury bills rates, completion of the Chellarams Plc’s series 2 bonds and the negative yield on First Bank’s eurobond.

FGN bond auction postponed. The postponed FGN bond auction was the major driver of secondary market activities as traders endeavoured to cover their short positions in view of the rescheduled auction. Consequently, the shorter and longer ends of the curve experienced an average of 0.5% and 1.01% increase in prices respectively. However, there was a slowdown in purchases at the end of the week as a result of NNPC cash withdrawal of circa N67.9 billion from the money market causing interbank rates to inch up slightly. The FGN bond primary auction has been rescheduled for February 29, 2012 and the offer sizes remain unchanged at c. N70 billion.

Treasuries are back at pre-bond market levels of 2003. Treasury bills experienced a bullish trend all through the week as traders and fund managers shifted their attention to the shorter end of the curve due to the attractive rates. The longest tenured bill was the main attraction and as such witnessed about 128bps drop in discount rate. We however note the rapid increase in average treasury rates since July 2011 and the subsequent convergence of FGN bond yields and treasury rates in Q4 2011, and the consequent effect on the fixed income market. Our analysis indicates that treasuries are currently at the highest levels since 2003, a period when Nigeria’s financial markets were predominantly short term in nature with little or no access to long term funds given the prevailing high interest rates at the time. (fig. 3)

Chellarams series 2 bond. In the corporate bond market, Chellarams Plc raised N540 million series 2 bond under its N5 billion medium term note programme. The bond which has a tenor of 7 years was issued at a coupon of MPR + 5% with a minimum and maximum interest rate of 13.00% and 19.00% respectively. Accordingly, Chellarams’ total bond issue now stands at N2.04 billion whilst the total outstanding volume of corporate bonds in Nigeria is c. N129.3 billion.

FBN Eurobond. We equally note the negative yield (YTM) on First Bank of Nigeria’s euro bond (9.75 March 2017) given that the bond has a call option and the next call date is March 2012. Therefore, the bond is priced in respect to March 2012 as its maturity date.

In the week ahead, the inflation figure for January 2012 is expected to be out; we anticipate a moderate increase in price levels. Also, the 9.50 February 23, 2012 - FGN bond - worth N35 billion will be maturing and 182day 364day bills worth c. N120 billion. We equally expect the issuance of c. N150 billion treasury bills at the primary auction. 

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