Bond Yields Close Bearish for the Month amid OMO rate Hikes and Slight Offshore Sell

Proshare

Wednesday, September 31, 2018/ 06.19PM / Zedcrest Capital

***Manufacturing Sector Expands at Faster Rate in October*** - CBN

KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.28%

As at October 16, 2018, 5bps up from 11.23% recorded in August 2018.

MPR

14.00%

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

External Reserves

$42.06bn

As at October 30, 2018. A c.0.17% decrease from $42.13bn on October 29, 2018

Brent Crude

$76.15pb

As at October 31, 2018. A c.0.57% increase from $75.72pb on October 30, 2018

 

 

Bonds

The bond market traded on a relatively mixed note, with slight demand on the short end of the curve offset by selloffs on the mid to long end, notably on the 2028s and 2034s, which were sold off to 15.68% and 15.48% respectively. Yields were slightly lower by c.3bps on the day, but closed the month at c.31bps higher M/M, due to the double OMO T-bill rate hikes by the CBN and slight offshore sell toward month end.

 

In the coming month, we expect the market to remain slightly bearish, with the DMO confirming the weak fiscal position of the FG via higher stop rates in recent auctions (Bonds/T-bills), and the CBN also expected to sustain higher rates in the T-bills market, in a bid to checkmate excessive FPI outflows.

 

Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

14.20

13.90

(0.49)

14.50 15-Jul-21

15.33

15.03

(0.07)

16.39 27-Jan-22

14.84

14.37

(0.02)

14.20 14-Mar-24

15.28

15.03

(0.02)

12.50 22-Jan-26

15.43

15.29

0.01

16.29 17-Mar-27

15.57

15.41

0.13

13.98 23-Feb-28

15.62

15.53

0.08

12.15 18-Jul-34

15.58

15.41

0.01

12.40 18-Mar-36

15.47

15.23

0.06

16.2499 18-Apr-37

15.26

15.19

(0.01)

Source: Zedcrest Dealing Desk 

 

Treasury Bills

Yields inched slightly higher by c.6bps in today’s session, following a weaker than expected NTB auction result, which prompted slight selloff on some mid and long tenured maturities. Despite the significant boost in system liquidity from FAAC payments in the previous session, trading activities remained very low as market players anticipated a further OMO auction by the CBN to mop up c.N382bn in OMO maturities tomorrow.

 

We expect the market to tilt slightly bearish tomorrow, with the lift in the PMA rates on the 182-day (+95bps) and 364-day bills (+80bps), fuelling speculations for a further hike in OMO rates by the CBN.

 

 

PMA Result – 31 October 2018

Tenor

Rate (%)

Offer (N'bn)

Sub (N'bn)

Sale (N'bn)

91 days

10.98

9.54

7.91

7.85

182 days

13.49

47.71

43.52

43.52

364 days

14.40

88.04

212.00

93.92

Source: Zedcrest Research

 

Benchmark FGN Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

6-Dec-18

13.10

12.75

0.20

3-Jan-19

13.10

12.75

0.20

14-Feb-19

13.00

12.80

0.10

14-Mar-19

12.90

12.80

0.05

4-Apr-19

13.00

12.85

0.05

18-Jul-19

13.10

12.60

0.00

1-Aug-19

13.70

13.45

0.00

12-Sep-19

14.40

14.20

0.25

3-Oct-19

14.30

14.20

(0.05)

Source: Zedcrest Dealing Desk 

 

Money Market

The OBB and OVN rates declined further by c.5pct to 4.33% and 4.92% respectively, as system liquidity was significantly bolstered to c.N488bn positive, via inflows from FAAC payments in the previous session.

 

We expect rates to remain relatively stable tomorrow, with inflows from OMO maturities c.N382bn expected to net off outflows from the expected OMO auction sale by the CBN.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

9.50

14.83

Overnight (O/N)

10.33

15.50

Source: FMDQ, Zedcrest Research


FX Market

At the Interbank, the Naira/USD rate remained stable at N306.60/$ (spot) and N362.82/$ (SMIS). At the I&E FX window, the NAFEX closing rate depreciated by c.0.06% to N363.54/$ from N363.32/$ previously.  Rates were however unchanged at the parallel market segment, with the cash and transfer rates closing at N361.00/$ and N364.00/$ respectively.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.60

306.60

CBN SMIS

362.82

362.82

I&E FX Window

363.54

363.32

Cash Market

361.00

361.00

Transfer Market

364.00

364.00

Source: CBN, FMDQ, REXEL BDC 

 

Eurobonds

The NGERIA Sovereigns weakened slightly by c.2bps in today’s session, due to continued selling pressures witnessed mostly on the Feb 2038 bond, now the highest yielding bond on the curve. An uptrend in US treasuries earlier in the month, and news of fresh supply of c.$2.8bn worth of FGN Eurobonds later in the month provided a context for an uptrend in yields over the course of the month, with yields closing by c.63bps higher M-o-M.

               

The NGERIA Corps were relatively flat in today’s session, except for slight interests seen on the UBANL 22s and slight sell on the ACCESS 21s Sub. On a M/M basis, the highest gainers were the SEPLLN 23s (+1.25pct) and ACCESS 21s (+0.31pct), whilst the worst loss was seen on the DIAMBK 19s (-0.32pct), in what was a relatively positive month overall for the Nigerian Corporate Eurobonds.

 

 

 Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

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