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Funding Rates Spike as Banks Fund for CBN’s Wholesale Auction

Bonds & Fixed Income	1628 VIEWS
Bonds & Fixed Income
1628 VIEWS

Monday, March 25, 2019 07:15 PM / Zedcrest Capital

***Buhari Receives Presidential Committee Report on National Minimum Wage***

KEY INDICATORS

Indicator	Value	Commentary
Inflation	11.31%	As at March 15, 2019. A c.6bps decline from 11.37% recorded in January 2019
MPR	14.00%	Left Unchanged for the 15^th Consecutive Time at the Jan. 22, 2019 MPC Meeting
External Reserves	$43.51bn	As at March 20, 2019. A c.0.23% increase from $43.41bn on March 19, 2019
Brent Crude	$66.86pb	As at March 25, 2019. A c.0.21% increase from $66.72pb on March 22, 2019

Bonds

The FGN Bond market remained relatively flat, except for slight demand on some short tenors following coupon payments on the FGN 2024 Sukkuk and FGN 2025 Bonds. Yields were however slightly higher by c.2bps on the day.

We expect demand interests to remain relatively muted ahead of the FGN bond auction scheduled to hold on Wednesday with N100bn of the 5, 7 and 10-yr bonds to be offered by the DMO.

Benchmark FGN Bonds
Description	Bid (%)	Offer (%)	Day Change (%)
14.50 15-Jul-21	14.57	14.31	(0.16)
16.39 27-Jan-22	14.53	14.25	0.22
12.75 27-Apr-23	14.68	14.40	0.07
14.20 14-Mar-24	14.50	14.27	0.02
13.53 23-Mar-25	14.55	14.37	0.10
12.50 22-Jan-26	14.50	14.33	(0.09)
16.29 17-Mar-27	14.48	14.28	(0.04)
13.98 23-Feb-28	14.33	14.27	0.03
12.15 18-Jul-34	14.39	14.30	(0.02)
12.40 18-Mar-36	14.32	14.13	0.01
16.2499 18-Apr-37	14.27	14.12	0.04

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market remained slightly bearish, as system liquidity was further tightened by a wholesale FX auction by the CBN. Market players however sustained demand on the longer end of the curve, with slight sell witnessed on some mid tenors.

We expect demand interests for T-bills to remain relatively constrained by the tight system liqudity levels which could push yields slightly higher. The CBN is also expected to keep yields elevated via renewed OMO auctions to mop up expected liquidty inflows from FAAC and OMO maturiities later in the week.

Benchmark Treasury Bills
Description	Bid (%)	Offer (%)	Day Change (%)
4-Apr-19	12.00	10.00	0.00
2-May-19	11.00	9.00	0.00
13-Jun-19	12.00	11.40	0.00
18-Jul-19	12.50	12.00	0.00
1-Aug-19	13.00	11.85	0.15
12-Sep-19	13.35	13.10	0.05
3-Oct-19	13.20	13.05	(0.05)
14-Nov-19	13.25	13.05	0.00
5-Dec-19	13.05	13.00	(0.20)
2-Jan-20	13.15	13.05	0.00
6-Feb-20	13.05	12.90	(0.05)

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market trended significantly higher by c.10pct as market players funded for a wholesale FX auction ($210m) by the CBN. This further compressed system liquidity which opened the session at c.N35bn positive. The OBB and OVN rates consequently ended the session at 22.43% and 24.43% respectively.

We expect rates to moderate slightly tomorrow, as market players would be able to fund deficits from the CBN’s SLF tomorrow.

Money Market Rates
	Current (%)	Previous (%)
Open Buy Back (OBB)	22.43	14.25
Overnight (O/N)	24.43	14.83

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate weakened by 0.02% to N306.95/$ in the Spot market, while the SMIS rate was unchanged at N355.78/$. The NAFEX closing rate in the I&E window appreciated marginally by 0.01% to N360.39/$. At the parallel market, the cash rate appreciated by 0.03% to N357.90/$, while the transfer rate remained unchanged N364.00/$.

FX Market
	Current (N/$)	Previous ( N/$)
CBN Spot	306.95	306.90
CBN SMIS	355.78	355.78
I&E FX Window	360.39	360.43
Cash Market	357.90	358.00
Transfer Market	364.00	364.00

Source: CBN, FMDQ, REXEL BDC

Eurobonds

The NGERIA Sovereigns declined further in today’s session as global growth fears persisted across markets. The NGERIA curve was consequently higher by c.15bps on the day, with the heaviest losses witnessed in the belly of the curve.

Investors were also slightly bearish on the NGERIA Corps, with yields mostly higher on the ECOTRA, ACCESS and FBNNL 21s.

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