Bond Market Turns Bearish Following Selloff on Mid-Tenors

Proshare

Saturday, October 13, 2018 / 03:45PM / Zedcrest Capital

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KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.23%

As at September14, 2018,9bps up from 11.14% recorded in July 2018.

MPR

14.00%

Left Unchanged for the 11th Consecutive Time at the Sept. 25, 2018 MPC Meeting

External Reserves

$43.43bn

As atOctober10, 2018. A c.0.21% decrease from $43.52bnon October9, 2018

Brent Crude

$79.73pb

As at October 12, 2018. A c.1.94% decreasefrom$81.31pbon October 11, 2018

 

 

Bonds

The bond market turned bearish in today’s session, with yields trending higher by c.6bps, following slight selloff on the mid-tenors (26s – 28s). Except for slight interests on the 21s, other maturities remained scantily traded, even as their bids weakened in tune with the overall sentiment on the day. Yields consequently close c.13bps higher W-o-W.

 

In the coming week, we expect the bearish sentiments to persist, as market players anticipate a further uptick in the inflation results to be published. Market players are also expected to maintain a short bias ahead of the bond auction scheduled for the 24thof October.

 


Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

14.00

13.62

0.08

14.50 15-Jul-21

14.59

14.47

(0.22)

16.39 27-Jan-22

14.32

13.72

0.22

14.20 14-Mar-24

15.02

14.82

0.03

12.50 22-Jan-26

14.96

14.84

0.12

16.29 17-Mar-27

15.15

15.09

0.10

13.98 23-Feb-28

15.27

15.22

0.09

12.15 18-Jul-34

15.23

15.16

0.02

12.40 18-Mar-36

15.27

15.10

0.07

16.2499 18-Apr-37

15.15

14.91

0.04

Source: Zedcrest Dealing Desk 

 

Treasury Bills

The T-bills market traded flat, with very little volumes traded over the course of the day. This was due to the constraint in system liqudity which was significantly compressed by funding for a Retail FX auction by the CBN.

 

We expect the market to open nextweek on a slightly bearish note, due to expected outflows for a Wholsale SMIS by the CBN on Monday, and further expectations forrenewed supply of T-bills at a PMA on Wednesday and an expected OMO auction on Thursday. Investors are however expected to favour the short tenors due to the higher discounts available in the secondary market.

 


Benchmark FGN Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

1-Nov-18

13.20

12.85

0.05

6-Dec-18

13.05

12.70

0.05

3-Jan-19

12.90

12.25

(0.10)

14-Feb-19

12.90

12.60

0.00

14-Mar-19

12.85

12.35

(0.15)

4-Apr-19

12.40

12.15

0.05

18-Jul-19

13.00

12.50

(0.10)

1-Aug-19

13.30

12.70

0.30

12-Sep-19

13.30

12.85

0.00

Source: Zedcrest Dealing Desk 

 

Money Market

In line with our expectations, the OBB and OVN rates spiked by c.10pct to 19.17% and 19.75%, as the huge outflows for the Retail FX funding (estimated at c.N350bn) sucked out most of the available system liquidity which opened the day at c.N395bn positive.

 

We expect rates to remain pressured opening next week due to further outflows expected via a wholesale SMIS by the CBN. We expect that the OVN rate may trend as high as 30%, with system liquidity likely to fall into negative territory.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

19.17

9.00

Overnight (O/N)

19.75

9.58

Source: FMDQ, Zedcrest Research 

 

 

FX Market

At the Interbank, the Naira/USD rate remained stable at N306.45/$ (spot), while the SMIS rate depreciated by c.0.33% to N362.52/$ from N361.34/$ previously. At the I&E FX window a total of $295.08mn was traded in 356 deals, with rates ranging between N345.00/$ - N365.50/$, whilst the closing rate depreciated slightly by c.0.03% toN364.12/$ from N364.02/$ previously.

 

At the parallel market, the cash and transfer rates remained unchanged at N360.00/$ and N363.00/$ respectively.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.45

306.45

CBN SMIS

362.52

361.34

I&E FX Window

364.12

364.02

Cash Market

360.00

360.00

Transfer Market

363.00

363.00

Source: CBN, FMDQ, REXEL BDC 

 

 

Eurobonds

The NGERIA sovereigns pared some losses in today’s session, with yields compressing slightly by c.4bps, consequently narrowing the week to date loss to c.20bps. The most gains were on the 47s, which fell back to c.8.50%, with a c.0.75pct PX gain on the day. 

                                                                                            

We witnessed continued interests around the shorter dated NGERIA Corps; GRTBNL 18s, ZENITH 19s and DIAMBK 19s. Investors were also slightly bullish on the ZENITH 22s and SEPLLN 23s.

 

 

 Proshare Nigeria Pvt. Ltd.

 

Proshare Nigeria Pvt. Ltd.


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