EM Contagion continue to hit local markets as Bond Yields weaken further

Proshare

Tuesday, August 14, 2018 /06:00PM / Zedcrest Capital

*** Turkey's Collapse Sinks Emerging Markets on ‘Manic Monday’*** - Bloomberg

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 September 24 & 25, 2018

External Reserves

$46.66bn

As at August 10, 2018. A c.0.09% decrease from $46.7bn as at August 9, 2018.

Brent Crude

$71.22pb

As at August 13, 2018. A c.2.12% increase from $72.76pb as at August 10, 2018

 

 

Bonds

The Bond market continued on a bearish run for the second consecutive trading session as off-shore investors risk off across major emerging markets in light of the recent contagion effect from Turkey’s currency crises. The aggressive sell off in the market drove bond yields higher by another c.13bps WoW, reaching a year to date (YTD) high of c.14.57% on the average. The 2024s maturities were the most hit, as yields expanded by c.51bps to close at 14.70%.

 

We maintain bearish outlook on bonds in the near term amidst global headwinds seen in similar EMs and the attendant geo-political risks as we gear up for the 2019 Nigeria elections.

FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

13.97

13.78

0.05

14.50 15-Jul-21

14.40

13.80

0.15

16.39 27-Jan-22

14.27

13.91

(0.15)

14.20 14-Mar-24

14.70

14.46

0.51

12.50 22-Jan-26

14.68

14.60

0.13

16.29 17-Mar-27

14.70

14.62

0.16

13.98 23-Feb-28

14.71

14.60

0.07

12.15 18-Jul-34

14.65

14.47

0.06

12.40 18-Mar-36

14.76

14.56

0.15

16.2499 18-Apr-37

14.81

14.45

0.15

Source: Zedcrest Dealing Desk

 

Treasury Bills

The T-bills market was scantily traded today with slight bearish posture dominating the market as participants sold off T-bills to provide for short-term funding needs. Discount rates consequently trended higher by c.9bps on the average, with sell-offs witnessed across the curve especially on the February 2019 maturities offered at the recent OMO auctions.

We expect bearish sentiments to persist over the rest of the week due to anticipated system liquidity decline coming from FGN bond auction, OMO auctions and Retail FX funding.

Secondary Market Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

13-Sep-18

11.05

10.20

0.05

4-Oct-18

10.55

9.95

0.05

1-Nov-18

11.45

11.10

0.15

6-Dec-18

12.15

11.95

0.05

3-Jan-19

12.25

11.95

0.00

14-Feb-19

12.15

12.00

0.05

14-Mar-19

12.15

11.95

0.05

4-Apr-19

12.20

11.20

0.05

18-Jul-19

11.70

10.95

0.35

Source: Zedcrest Dealing Desk

 

 

Money Market

The OBB and OVN rates closed higher today at 11.45% and 12.42% respectively as a result of a dip in system liquidity as authorized dealers funded for bids at the weekly CBN Wholesale FX Sales interventions.

 

We expect funding rates to oscillate in tandem with system liquidity. Inflows via OMO T-bills maturities of c.N440bn is expected to be offset by another OMO session by the CBN on Thursday. Anticipated FGN Bond Auction and Retail FX funding will also put pressure on funding rates later this week.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

11.45

8.42

Overnight (O/N)

12.42

9.25

Source: FMDQ, Zedcrest Research

 

FX Market

The Naira depreciated by 5kobo to close at N306.05/$ at the interbank market. The same trend was witnessed at the I&E FX window, where the Naira depreciated by 20k to close at closing at N362.20/$ (from N362.00/$ previously). At the parallel market, the cash rates appreciated by 10K to N359.40/$, while the transfer rates traded flat at to N362.00/$.

 

Oil prices dropped slightly today, with Brent crude futures decreased by c.$1.54 to $71.22, largely off the announcement of a deal between Russia, Iran, Turkmenistan, Kazakhstan and Azerbaijan to end a two-decade-long dispute on the statute of the Caspian Sea, the world largest water reserve. The CBN’s External reserves has however maintained a steady decline, falling by c.0.09% to $46.66bn as at 13-Aug., from $46.70bn as at 10-of Aug., 2018.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.05

306.00

CBN SMIS

352.00

352.00

I&E FX Window

362.20

362.00

Cash Market

359.40

359.50

Transfer Market

362.00

362.00

Source: CBN, FMDQ, REXEL BDC

  

Eurobonds

Weak global emerging markets sentiments continue to support bearish trading of the NGERIA Sovereigns, as yields expanded by 39bps across the traded tickers. Sell-offs were evenly spread across the curve, with the 2022s & 2023s the most hit, both losing c.53bps in the trading session.

 

The NGERIA Corps were not left out, as sell-offs were witnessed across the curve for another consecutive trading session. Yields ticked up by c.14bps the most losses witnessed on the GRTBNL 18s, ZENITH 19s and UBANL 22s. On the flip side, we however witnessed demand interests on the ACCESS 21s, which gained about c.18bps on the day.

 

 Proshare Nigeria Pvt. Ltd.


 

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