Bond Yields Break Key Support as Offshore Inflows Push I and E Rate to 4-Month Low

Proshare

Friday, January 18, 2018/ 06:10AM / Zedcrest Capital 


***$1.1bn GI loan to create jobs, tackle food insufficiency*** – FG

KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.44%

As at January 16, 2019. A c.16bps increase from 11.28% recorded in November 2018

MPR

14.00%

MPC Meeting to be held on the 21st and 22nd  of January 2019

External Reserves

$43.11bn

As at January 16, 2019. A c.0.01% increase from $43.10bn on January 15, 2019

Brent Crude

$61.08pb

As at January 17, 2019. A c.1.63% increase from $60.81pb on January 16, 2018

 

Bonds

Interests in the bond market were largely focused on the mid tenors (27s and 28s) which were significantly compressed by c.16bps and c.30bps respectively, with the 27s breaking the 15% support to trade at a low of 14.80% whilst the 28s reached a low of 15.00%.

 

We have witnessed significant inflows from offshores as seen in the significant rise in volumes traded at the I&E window to c.$583m, with a corresponding compression in rates to a 4-Month low of N362.70/$. We have however note that the offshores have remained short duration, with most of the inflows invested in Treasury bills and others finding their way into the equities market which have posted four consecutive sessions of gains.

 

We consequently posit that the significant decline in bond yields have been largely driven by demand from local investors seeking to reinvest inflows from coupon payments. Whilst we expect this trend to persist in the near term, we expect yields to reverse above the 15% mark as the coupon demand wanes and the DMO floats the January bond auction which we expect to be relatively sizeable.

 

We consequently advise clients to take profit on bonds at these levels and to remain short duration until after the bond auction for the month.  

 

Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

14.98

13.99

0.00

14.50 15-Jul-21

15.29

14.87

(0.13)

16.39 27-Jan-22

15.05

14.51

0.00

14.20 14-Mar-24

15.12

14.61

(0.01)

12.50 22-Jan-26

15.43

14.97

(0.05)

16.29 17-Mar-27

14.95

14.88

(0.16)

13.98 23-Feb-28

15.17

15.05

(0.30)

12.15 18-Jul-34

15.20

14.92

(0.18)

12.40 18-Mar-36

15.20

14.99

(0.18)

16.2499 18-Apr-37

15.17

14.84

(0.01)

Source: Zedcrest Dealing Desk

 

 

Treasury Bills

Yields in the T-bills moderated further by c.10bps in today’s session, as buying interests remained supported by slight offshore demand in the market and inflows from OMO and PMA repayments.

The CBN however floated an OMO auction which attracted most of the offshore inflows that came into the market, with total subscriptions of c.N526bn of the N550bn offered and rates maintained across all tenors offered. Worthy of note however was the increase in demand for the short and mid tenor OMO offerings.

We however expect yields to trend higher tomorrow, with the CBN likely to conduct a further OMO auction, whilst the banks fund for a Retail FX auction by the CBN, all of which would compress system liquidity and fuel slight selloff mostly on the short end of the curve.

Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

14-Feb-19

14.20

13.75

(0.80)

14-Mar-19

14.00

12.00

(1.00)

4-Apr-19

14.00

13.20

(0.40)

2-May-19

13.00

12.80

(0.10)

13-Jun-19

13.20

12.90

0.05

18-Jul-19

12.90

12.65

(1.10)

1-Aug-19

14.50

13.75

0.00

12-Sep-19

14.75

14.30

(0.10)

3-Oct-19

14.90

14.70

0.10

14-Nov-19

14.80

14.20

0.00

5-Dec-19

14.90

14.75

(0.10)

Source: Zedcrest Dealing Desk 

 

 

Money Market

Rates in the money market moderated by c.5pct, as inflows from Net OMO and PMA repayments (c.N80bn) bolstered system liquidity to c.N60bn Negative, from a Negative position of c.N140bn previously. The OBB and OVN rates consequently closed the session at 13.00% and 13.50% respectively.

We expect rates to trend higher tomorrow with the CBN expected to debit banks for its bi-weekly retail FX intervention.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

13.00

18.17

Overnight (O/N)

13.50

19.75

Source: FMDQ, Zedcrest Research

 

 

 

 

FX Market

At the Interbank, the Naira/USD rate fell back by c.0.16% to N306.85/$ at the spot market, while the SMIS rate remained unchanged at N356.73/$. The NAFEX rate in the I&E window also appreciated further by c.0.10% to a 4-Month low of N362.70/$ following continued FX supply from offshores into the market, with total traded volumes also hitting a 4-Month high of $583m. Rates at the parallel market however remained pressured, with the cash rate rising by 0.06% to N361.20/$, while the transfer rate remained unchanged at N365.50/$.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.35

306.85

CBN SMIS

356.73

356.73

I&E FX Window

363.05

363.61

Cash Market

361.20

361.00

Transfer Market

365.50

365.50

Source: CBN, FMDQ, REXEL BDC

 

 

Eurobonds

Investors’ interests waned slightly on the NGERIA Sovereigns with yields retracing higher by c.3bps average following slight sell on the long end of the curve (38s – 49s).

 

In the NGERIA Corps investors interest dampened slightly on the DIAMBK 19s and FBNNL 21s which rose by c.15bps, we however witnessed slight interests on the ACCESS 21s Snr.

 

 Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.



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