Bond Yields Expected to Tick Higher following Weak Auction Results

Proshare

Wednesday, July 24, 2018 /10:00PM / Zedcrest Capital

*** Ignore pressure to sign-on to AfCFTA agreement, MAN urges FG***

KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.23%

As at July 23, 2018, 38bps down from 11.61% recorded in May 2018.

MPR

14.00%

Next MPC meeting scheduled for July 23 & 24, 2018

External Reserves

$47.30bn

As at July 24, 2018. A c.0.04% decrease from $47.32bn as at July 23, 2018.

Brent Crude

$74.30pb

As at July 25, 2018. A c.2.16% increase from $72.73pb as at July 24, 2018

 

 

Bonds

The Bond market traded on a relatively quiet note, as market players waited on the sidelines in anticipation of results of today’s Bond auction, which has been much anticipated to provide a direction for movement in yields in the near term. Yields ticked slightly higher by c.5bps on average, due to weaker bids on the shorter end of the curve.

 

Results from the bond auction showed a continued weakness in demand for the shorter tenured bonds, with most bids skewed towards the 10-yr bond. The DMO was consequently only able to raise about N66.90bn from a total offer size of N90bn, with stop rates rising by c.29bps from their previous levels. The highest uptick was witnessed on the 2028s (+49bps), in tune with the gradual normalization of the bond yield curve.

 

We expect the market to be slightly bearish, especially on the mid to long end of the curve, as market players react to the higher stop rates at the auction.


FGN Bond Auction Result – 25 July 2018

Maturity

Rate (%)

Offer (N'bn)

Sub (N'bn)

Sale (N’bn)

Apr-23

13.69

25.00

12.93

8.93

Mar-25

14.00

25.00

13.58

11.58

Feb-28

14.30

40.00

50.51

46.39

 

FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

13.64

12.92

0.54

14.50 15-Jul-21

13.57

13.26

0.02

16.39 27-Jan-22

13.47

13.19

0.02

14.20 14-Mar-24

13.81

13.53

(0.04)

12.50 22-Jan-26

14.07

13.91

(0.05)

16.29 17-Mar-27

14.00

13.90

0.02

13.98 23-Feb-28

14.17

14.02

0.00

12.15 18-Jul-34

14.20

12.45

(0.02)

12.40 18-Mar-36

14.21

14.08

(0.01)

16.2499 18-Apr-37

14.17

13.97

0.00

Source: Zedcrest Dealing Desk

 

Treasury Bills

Activities in the T-bills space were slightly bearish, with some sell-off witnessed mostly on the Aug – Jan Maturities. This came on the back of expectations for a renewed supply of OMO T-bills at an auction by the CBN tomorrow. Yields consequently inched higher by c.5bps on average.

We expect yields to be fairly stable tomorrow, as the CBN is expected to conduct another auction to mop up inflows from c.N293bn Maturing OMO bills.

 

Secondary Market Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

2-Aug-18

11.05

9.70

0.05

13-Sep-18

11.05

10.60

0.15

4-Oct-18

10.30

9.40

0.10

1-Nov-18

10.85

10.50

0.15

6-Dec-18

12.10

11.80

0.00

3-Jan-19

11.90

11.60

0.00

14-Feb-19

12.12

11.95

(0.03)

14-Mar-19

12.05

11.20

(0.10)

4-Apr-19

12.05

10.95

(0.05)

18-Jul-19

11.45

11.10

0.10

Source: Zedcrest Dealing Desk

  

Money Market

The OBB and OVN rates remained relatively stable at 7.07% and 8.21% respectively, as system liquidity remained relatively buoyant at c.N230bn, despite the outflows from the OMO T-bill sales in the previous session.

Rates are expected to be relatively stable tomorrow, on the back of OMO maturity inflows, which should be offset by an OMO auction by the CBN.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

7.07

7.17

Overnight (O/N)

8.21

8.00

Source: FMDQ, Zedcrest Research 

  

FX Market

The Naira remained stable at N305.90/$ in the Inter-bank market, while it maintained gains across other market segments. The CBN’s external reserves has however maintained its recent decline, down to $47.30bn as at 24th of July, as the CBN has sustained its interventions across the various market segments, in the wake of weaker inflows from Foreign portfolio investors. 

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

305.90

305.90

CBN SMIS

330.00

330.00

I&E FX Window

361.45

361.68

Cash Market

358.50

358.70

Transfer Market

361.50

362.50

Source: CBN, FMDQ, REXEL BDC 

 

Eurobonds

We witnessed renewed interest on the Nigerian Sovereigns, with yields compressing by c.4bps across the curve. We witnessed the most demand on the 2030s, which compressed by c.7bps (+0.50pt).

Investors were also bullish on the Nigerian Corporates, with demand witnessed mostly on the GRTBNL 18s, FBNNL 21s, UBANL 22s and FIDBAN 22s.

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

 

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