Bond Yields Retrace Sharply, As DMO Resumes NTB Auction Sales

Proshare

Thursday, January 03, 2018/ 06:24AM / Zedcrest Capital


***Total Begins Production at Egina Oil Field***

KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.28%

As at December 14, 2018. A c.2bps increase from 11.26% recorded in October 2018

MPR

14.00%

Left Unchanged for the 12th Consecutive Time at the Nov. 22, 2018 MPC Meeting

External Reserves

$43.20bn

As at December 28, 2018. A c.0.07% decrease from $43.23bn on December 27, 2018

Brent Crude

$55.51pb

As at January 2, 2019. A c.2.51% increase from $54.15pb on December 31, 2018

 

Bonds

In line with our expectations, the Bond market retraced sharply by c.18bps in the first trading session of the year, following slight sell off around the mid tenors. The highest uptick was witnessed on the 2024s (+71bps) which was rallied in the previous week.

 

We expect yields to still inch higher as market players anticipate release of the Q1 FGN Bond calendar, with the release of the Q1 NTB calendar pointing to a relatively robust level of issuance by the DMO.

 

Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

15.29

14.73

0.16

14.50 15-Jul-21

15.72

15.48

0.09

16.39 27-Jan-22

15.12

14.75

0.00

14.20 14-Mar-24

15.17

14.91

0.71

12.50 22-Jan-26

15.75

15.57

0.28

16.29 17-Mar-27

15.63

15.51

0.18

13.98 23-Feb-28

15.69

15.57

0.13

12.15 18-Jul-34

15.65

15.40

0.15

12.40 18-Mar-36

15.70

15.40

0.10

16.2499 18-Apr-37

15.57

15.41

0.00

Source: Zedcrest Dealing Desk

 

 

Treasury Bills

The T-bills market was slightly bullish with yields moderating across the short and mid tenors as market players cherry-picked on some of the attractive yields in absence of an OMO auction and relatively smaller amount of NTB offerings at the Auction, given that the DMO had earlier signalled its intention to repay c.N85bn maturities at the first auction of the year. As contained in the NTB calendar released by the DMO, it intends to rollover all other NTB maturities in Q1 2019.

The DMO consequently sold the total amount of c.N74.84bn it offered at today’s auction, with stop rates maintained across all tenors except the 364-day which advanced by c.5bps to 14.50%. Demand at the auction was moderately robust, with a bid to cover ratio of 1.53X.

We expect yields to trend higher, as the CBN is expected to resume its spate of OMO interventions in the market to mop up c.N584bn in OMO maturities.

Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

3-Jan-19

15.50

13.00

(0.75)

14-Feb-19

17.00

14.50

0.50

14-Mar-19

13.50

11.00

(1.50)

4-Apr-19

13.00

12.50

(2.50)

2-May-19

13.50

12.50

(1.50)

13-Jun-19

14.00

13.00

(1.00)

18-Jul-19

14.50

14.00

(0.50)

1-Aug-19

15.00

14.00

(1.00)

12-Sep-19

15.00

14.00

(0.05)

3-Oct-19

14.90

14.60

(0.60)

14-Nov-19

15.05

14.90

0.05

5-Dec-19

15.50

13.00

(0.75)

Source: Zedcrest Dealing Desk

 

 

Money Market

Rates in the money market remained relatively unchanged from their previous levels, with the OBB and OVN rates opening the year at 18.33% and 19.42%. System liquidity also opened at c.N120bn.

Rates are expected to trend lower tomorrow due to expected inflows of c.N690bn from OMO and Net PMA repayments. This is however barring a significant OMO sale by the CBN.

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

18.33

19.00

Overnight (O/N)

19.42

20.17

Source: FMDQ, Zedcrest Research

 

 

 

 

FX Market

At the Interbank, the Naira/USD rate remained unchanged at N306.95/$ (spot) and N358.13/$ (SMIS), while the NAFEX rate in the I&E window depreciated by c.0.11% to N364.41/$ from N364.00/$ previously. At the parallel market, the cash rate appreciated firmly by c.0.33% to N358.80/$, while the transfer rate remained unchanged at N364.00/$.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.95

307.00

CBN SMIS

358.31

358.31

I&E FX Window

364.41

364.00

Cash Market

358.80

360.00

Transfer Market

364.00

364.00

Source: CBN, FMDQ, REXEL BDC

 

 

Eurobonds

The NGERIA Sovereigns resumed the year on a bearish note, following slight mostly around the mid tenors (27s -31s). Yields consequently trended higher by c.8bps on the day.

 

In the NGERIA Corps, investors resumed buying the FBNNL 21s, Access 21s Snr and the Zenith 19s and 22s. Demand however remained weak for DIAMBK 19s, in the wake of its delisting from the NSE corporate governance Index.

 

 

 Proshare Nigeria Pvt. Ltd.

 

 

 Proshare Nigeria Pvt. Ltd.

 

 

Related News

1.       Despite Year End Funding Pressures, CBN Maintains OMO and FX Interventions

2.      Naira Crashes Below N360 Per Dollar at the Parallel Market as External Reserves Resume Downtrend

3.      Demand Pressures Force c.50bps Rally on 2024 FGN Bond

4.      Money Market Rate Decreased As Overnight Rate Fell to 25.08%

5.      Markets Close on a Quiet Note as Tight System Liquidity pushes Funding Rates Higher

6.      Investors Look To Secondary Market To Fill Unmet Demand At Previous Day’s Auction

7.      Summary of December 2018 FGN Bond Auction Results

8.     DMO’s Weak Borrowing Appetite Forces 10-yr Auction Rate 33bps Lower

9.      DMO to offer N70bn FGN Bonds tomorrow as N100bn FGN Sukkuk Bond Offer Closes


 Proshare Nigeria Pvt. Ltd.


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