Fixed Income Markets Trend Bearish as CBN Hikes OMO Rate

Proshare

Friday, November 30, 2018/ 06:32AM / Zedcrest Capital

***Naira continues slump at parallel market, reaches 1-year high***

KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.26%

As at November 21, 2018. A c.2bps down from 11.28% recorded in September 2018

MPR

14.00%

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

External Reserves

$41.91bn

As at November 27, 2018. A c.0.19% increase from $41.83bn on November 26, 2018

Brent Crude

$59.69pb

As at November 29, 2018. A c.0.63% decrease from $60.07pb on November 28, 2018

 

Bonds

In reaction to an increase in rates at the CBN OMO auction, especially at the longest tenor to 14.75% (from 14.50% previously), the Bond market traded on a bearish note on the day. Yields at the mid- to long-end of the curve expanded by c.4bps on the average with some trades executed at the market bid.

 

We expect the market to weaken further to close the month, with further correction expected across the curve.

Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

15.00

14.26

(0.01)

14.50 15-Jul-21

15.43

15.29

0.02

16.39 27-Jan-22

14.73

14.34

(0.22)

14.20 14-Mar-24

15.08

14.97

(0.09)

12.50 22-Jan-26

15.70

15.47

0.03

16.29 17-Mar-27

15.76

15.68

0.06

13.98 23-Feb-28

15.90

15.82

0.03

12.15 18-Jul-34

15.61

15.55

0.01

12.40 18-Mar-36

15.63

15.57

0.06

16.2499 18-Apr-37

15.55

15.46

0.04

Source: Zedcrest Dealing Desk

 

Treasury Bills

The T-bills market opened the day bearish, as once again market participants focused on supply at the OMO auction floated by the CBN. Expectations for a rate increase by the CBN at today’s OMO auction saw spreads expand intraday, with bids touching 14.90% on the long-end. A less than expected increase in the OMO stop rates caused a retracement, as yields trended lower by c.5bps on the average across the benchmark securities.

 

At the OMO auction, bids were muted as the maturities on offer were undersubscribed by c.67%. The CBN however sold a total of N371.56bn across three maturities on offer, against maturities of c.N443.76bn. The Apex bank raised stop rates on the 98-, 182- and 364-day bills; clearing at 11.65% (+15bps), 13.20% (+20bps) and 14.75% (+25bps) respectively.

We expect a repricing across the NTB curve due to the uptick at today’s OMO auction. We expect market to trade cautiously as the market settles at a new yield level.

 


OMO Auction Result

Tenor

Rate (%)

Offer (₦’bn)

Sub (₦'bn)

Sale (₦'bn)

98-days

11.65

50.00

0.15

0.10

182-days

13.20

150.00

64.79

63.81

364-days

14.75

400.00

338.20

307.65

 

Benchmark FGN Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

6-Dec-18

12.90

12.20

0.00

3-Jan-19

13.40

12.75

0.30

14-Feb-19

13.50

13.20

(0.50)

14-Mar-19

13.10

12.60

0.00

4-Apr-19

13.00

12.55

0.00

2-May-19

13.30

12.60

0.00

18-Jul-19

13.00

12.75

0.00

1-Aug-19

13.95

13.70

0.00

12-Sep-19

14.65

14.50

(0.05)

3-Oct-19

14.70

14.50

(0.10)

14-Nov-19

14.70

14.50

(0.15)

Source: Zedcrest Dealing Desk

 

Money Market

Despite the CBN’s attempt to stem the excess liquidity via the sale of OMO securities (c.N371.56bn), money market rates closed lower at 13.83% (from 17.17%) and 14.83% (from 18.00%) for Open Buy-Back (OBB) and overnight (O/N) respectively due to OMO maturities of c.N443.76bn. System liquidity is consequently estimated at c.N205bn as at close of business today.

We expect funding rates to dip further tomorrow as market players anticipate inflows from the October FAAC payments. There is an outside chance of the CBN floating a third OMO auction tomorrow to manage liquidity levels.

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

13.83

17.17

Overnight (O/N)

14.83

18.00

Source: FMDQ, Zedcrest Research

 

FX Market

At the Interbank market, the Naira/USD rate remained unchanged to close at N306.80/$ (spot) and N359.81/$ (SMIS). At the I&E FX window a total of $516.57m was traded in 445 deals, with rates ranging between N356.00/$ - N365.60/$. The NAFEX closing rate appreciated by c.0.02% to close at N364.08 /$ from N364. 15/$ previously.

 

Volatility was the word on the street for the parallel market segments, as the Naira dropped by c.N4 on the day. The cash and transfer rates closed at N370/$ (from N366.00/$ previously) and N372.50/$ (from N368.00/$ previously) respectively, the highest levels seen since August 2017.

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.80

306.80

CBN SMIS

359.81

359.81

I&E FX Window

364.08

364.15

Cash Market

370.00

366.00

Transfer Market

372.50

368.00

Source: CBN, FMDQ, REXEL BDC

 

Eurobonds

Yields on the NGERIA Sovereign Eurobonds continued to improve today as the SSA segment enjoyed positive sentiments from the US FED Chair’s speech signalling possible pause in rate hikes in 2019. Yields compressed further by c.6bps on the average across all the tickers on the curve.

 

Similarly, the NGERIA Corps also witnessed positive investor sentiment. We witnessed continued buy interest in the Zenith 19s and 22s while we witnessed more sellers of the FIDBAN 22s. Yields compressed across most tracked tickers, with the ACCESS Sub 19s and DIAMBK 19s the most bullish, dropping by c.49bps and c.34bps respectively.

 

 Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

 

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