Funding Rates Spike As CBN Reverses Paris Club Credits

Proshare

Tuesday, September 25, 2018 / 06:40 PM /  Zedcrest Capital

***CBN Retains MPR at 14%, but with a Hawkish Bias***

KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.23%

As at September14, 2018,9bps up from 11.14% recorded in July 2018.

MPR

14.00%

Left Unchanged for the 11th Consecutive Time at the Sept. 25, 2018 MPC Meeting

External Reserves

$44.83bn

As atSeptember 21, 2018. A c.0.11% decrease from $44.89bnon Sept. 20, 2018

Brent Crude

$81.38pb

As at September25, 2018. A c.0.13% increasefrom$80.16pbon Sept. 24, 2018

 

 

Bonds

The Bond market remained largely order driven, with yields closing relatively flat on the day. We witnessed slight sell on the 2027s which inched higher by c.5bps, as market players priced in expectations for the auction tomorrow.

 

Following the slightly hawkish tone by the CBN at its MPC meeting today, combined with fears of continued inflationary pressures from expected fiscal injections and rising food costs, our expectations are for yields to maintain a gradual uptick towards year end. We are consequently not bullish on bonds at these levels.

 

Local Demand for the short and mid tenured bonds has however been moderately robust in recent times and we consequently expect moderate demand at the FGN Bond auction tomorrow.


FGN Bond Auction Expectation

Tenor

Offer (N'bn)

Expected Stop Rate (%)

Previous Stop Rate (%)

APR 2023

25.00

14.70 - 14.90

14.39

MAR 2025

25.00

15.00 - 15.15

14.60

FEB 2028

40.00

15.15 - 15.30

14.69

 

Secondary Market Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

14.14

13.33

0.00

14.50 15-Jul-21

15.17

15.01

0.09

16.39 27-Jan-22

14.72

14.42

(0.03)

14.20 14-Mar-24

15.02

14.84

0.00

12.50 22-Jan-26

15.23

15.14

0.00

16.29 17-Mar-27

15.23

15.16

0.05

13.98 23-Feb-28

15.23

15.14

0.00

12.15 18-Jul-34

15.43

15.31

(0.01)

12.40 18-Mar-36

15.45

15.35

0.02

16.2499 18-Apr-37

15.42

15.28

0.01

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on a bearish note, with yields inching higher by c.35bps on average. This came on the back of some selloff mostly on the shorter end of the curve as market players reacted to the reversal of the paris club credit by the CBN which led to a significant decline in system liquidty.

 

We expect yields to remain slightly elevated until Thursday, where we expect inflows from OMO T-bill maturities to bolster system liqudity and fuel some buying interests in the market.

 

 

Secondary Market Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

4-Oct-18

12.00

9.00

(1.50)

1-Nov-18

13.00

11.50

(1.00)

6-Dec-18

13.00

12.10

0.00

3-Jan-19

12.75

12.05

0.60

14-Feb-19

13.00

12.55

0.20

14-Mar-19

12.85

12.30

0.00

4-Apr-19

13.00

12.00

0.55

18-Jul-19

13.00

12.50

(0.20)

1-Aug-19

13.00

12.50

(0.35)

Source: Zedcrest Dealing Desk 

 

 

Money Market

The OBB and OVN rates spiked by c.10pct to 18.00% and 19.42% respectively. This came on the back of CBN debits in respect of reversal of Paris club payments to states by the FG. System Liquidity consequently declined sharply to c.N122bn from c.N478bn previously.

 

We expect rates to remain elevated at these levels, as there are no significant inflows expected tomorrow.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

18.00

8.33

Overnight (O/N)

19.42

9.08

Source: FMDQ, Zedcrest Research

 

FX Market

At the Interbank, the Naira/USD rate remained stable at N306.35/$ (spot) and N360.94/$ (SMIS).  At the I&E FX window a total of $264.04mn was traded in 390 deals, with rates ranging between N360.00/$ - N365.00/$. The NAFEX closing rate appreciated by c.0.15% to N363.72/$ from N364.28/$ previously.

 

At the parallel market, the cash rates appreciated by 20k to N359.60/$, while the transfer rate remained unchanged at N362.00/$.

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.35

306.35

CBN SMIS

360.94

360.94

I&E FX Window

363.72

364.28

Cash Market

359.60

359.80

Transfer Market

362.00

362.00

Source: CBN, FMDQ, REXEL BDC 

 

 

Eurobonds

The NGERIA Sovereignswas slightly bullish, with yields compressing by c.4bps on average. We witnessed the most interest on the 2027 which gained c.0.33pct in price terms.

 

The NGERIA Corpswere slightly bullish, with slight interests seen on the Zenith 19s, Access 21s Sub and Ecotra 21s.

 

 

 

 Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

Related News

1.       Bond Yields Compress Further on Renewed Local Demand

2.      Resurgent Interests in EM Bolsters Nigerian Eurobonds to 6-Week High

3.      Market players Oversubscribe 1yr PMA Bill by c.250%

4.      Bond Yields Weaken Following Renewed Local Supply on the Long End

5.      Average T-Bills Rate Rose 184bps WoW Amidst Buoyant System Liquidity

6.      Bond Yields Moderate Further Amid Tighter Supply

7.      Average T-bills Yield Rose Significantly by 208bps to Close the Week at 14.43%

8.     Markets Take a Breather as CBN Pauses on OMO

9.      Market Players Selloff Bills above 14% as CBN extends OMO offer to the 1-year

10.  Yield Curve Nears Inversion as DMO Clears 1-Year Bill at 15.60% eff. Yield

11.   Market Players Risk off T-bills, as CBN Elongates OMO Tenor above the 300day Mark

12.  Ahead of Next T-bills Auction Scheduled for 12th Sept, 2018

13.  Market Players Demand Higher Rates for OMO, as PMA Approaches

 

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