Bond Yields Spike to 13-Month High as Risk off Sentiments Heighten

Proshare

Monday, November 12, 2018/ 07.55PM / Zedcrest Capital

***Nigeria Eyes Return to Dollar Bond Market***

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

$41.73bn

As at November 9, 2018. A c.0.07% decrease from $41.76bn on November 8, 2018

Brent Crude

$71.05pb

As at November 12, 2018. A c.1.25% increase from $70.17pb on November 9, 2018

 

 

Bonds

Despite news of an impending Eurobond Issuance by the Nigerian FG, market players remained signifcantly risk off the Domestic FGN bonds with yields rising by c.11bps d/d. This came on the back of selloffs mostly on the Feb 2028s and Jul 2034s which were sold off to 15.85% and 16.00% respectively. At an average level of c.15.40%, yields are now at a 13-month high last seen in october 2017.

 

We understand the continued uptick in yields to be closely linked to expectations for further bearish pressures ahead of the forthcoming elections and more recently, expected price and funding pressures from the recently passed 2018 budget, and minimum wage agreement @ N30,000.

 

Our outlook remains bearish, with yields expected to break the 16% mark sooner or later, due to weak demand interests and heightened risk off sentiments.

 

Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

14.84

14.13

0.18

14.50 15-Jul-21

15.42

15.13

0.15

16.39 27-Jan-22

15.12

14.38

0.09

14.20 14-Mar-24

15.31

15.16

0.00

12.50 22-Jan-26

15.61

15.45

0.02

16.29 17-Mar-27

15.75

15.55

0.13

13.98 23-Feb-28

15.99

15.88

0.17

12.15 18-Jul-34

15.89

15.77

0.08

12.40 18-Mar-36

15.71

15.51

0.07

16.2499 18-Apr-37

15.64

15.42

0.25

Source: Zedcrest Dealing Desk 

 

Treasury Bills

Market players were better offered in the T-bills space as they looked to take profits in lieu of the forthcoming PMA and OMO auctions expected Wednesday/Thursday. Yields were however relatively flat on the day, due to the robustly positve level of liqudity in the system.

 

We expect yields to maintain a gradual uptick especially on the mid to long end of the curve, as market players anticipate more attractive offerings at auction.

 

Benchmark FGN Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

6-Dec-18

12.25

11.75

(0.25)

3-Jan-19

12.80

12.30

0.00

14-Feb-19

12.70

12.55

(0.05)

14-Mar-19

13.00

12.50

0.00

4-Apr-19

13.00

12.50

0.00

18-Jul-19

13.00

12.70

0.00

1-Aug-19

13.70

13.10

0.00

12-Sep-19

14.45

14.30

(0.05)

3-Oct-19

14.50

14.35

0.00

Source: Zedcrest Dealing Desk

 

 

Money Market

The OBB and OVN rates opened the week slightly higher at 6.08% and 7.00% respectively, due to funding for a Wholesale FX auction by the CBN which is estimated to have compressed system liquidity by c.N75bn to c.N480bn from c.N555bn previously.

 

We expect rates to remain relatively stable tomorrow, as there are no significant outflows expected.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

6.08

4.25

Overnight (O/N)

7.00

5.00

Source: FMDQ, Zedcrest Research 

 

FX Market

At the Interbank, the NGN/USD spot rate depreciated by c.0.02% to N306.70/$, while the SMIS rate remained unchanged at N360.85/$. At the I&E FX window a total of $89.23mn was traded in 186 deals, with rates ranging between N356.00/$ - N364.70/$. The NAFEX closing rate depreciated by c.0.08% to N363.89/$ from N363.60/$ previously.

 

At the parallel market segment, the cash rate appreciated further by 20k to N361.50/$, while the transfer rate remained unchanged at N364.50/$.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.70

306.65

CBN SMIS

360.85

360.85

I&E FX Window

363.89

363.60

Cash Market

361.50

361.70

Transfer Market

364.50

364.50

Source: CBN, FMDQ, REXEL BDC

 

 

 

Eurobonds

The NGERIA Sovereigns remained slightly bearish despite the lower trading volumes seen on the back of the US Bond Market Holiday. The 2027s were the most bearish on the day, having fell by c.0.20pct only in price terms.

               

In the NGERIA Corps, we witnessed further strengthening on the DIAMBK 19s, following news of a planned acquisition of the Bank, which was later debunked and consequently softened sentiments slightly.  Other tickers were relatively flat on the day.

 

 

 Proshare Nigeria Pvt. Ltd.



Proshare Nigeria Pvt. Ltd.

 

 

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