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

Proshare

Tuesday, September 11, 2018    10.42 PM / Zedcrest Capital

***Buhari’s Second Term Poses Risk to Economic Devt*** - HSBC

KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.14%

As at August 15, 2018, 9bps down from 11.23% recorded in June 2018.

MPR

14.00%

Next MPC meeting scheduled for September 24 & 25, 2018

External Reserves

$45.31bn

As at September 10, 2018. A c.0.24% decrease from $45.42bn on Sept. 7, 2018

Brent Crude

$78.58pb

As at September 11, 2018. A c.1.72% increase from $77.25pb on Sept. 10, 2018

 

 

Bonds

The Bond market remained largely order driven, with continued client interests seen around the mid tenured bonds (26s -28s) and some cherry-picking for higher yields on the 2021s and 2036s. Yields however remained flat d/d, as clients maintained a floor of c.15.10% on their bids.

 

Clients (Locals) have remained more positively disposed to bonds, in view of the recent uncertainty and risk off stance within the T-bills space. We expect these sentiments to keep bond yields in check in the near term, but we however maintain our bearish outlook ahead of the next FGN Bond Auction (26th September), where we expect renewed supply of bonds to drive yields higher.

 

Secondary Market Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

14.42

13.79

0.35

14.50 15-Jul-21

15.17

15.05

(0.13)

16.39 27-Jan-22

15.20

14.87

0.08

14.20 14-Mar-24

15.30

14.91

0.00

12.50 22-Jan-26

15.22

15.16

(0.04)

16.29 17-Mar-27

15.14

15.09

(0.02)

13.98 23-Feb-28

15.21

15.15

(0.20)

12.15 18-Jul-34

15.46

15.33

0.04

12.40 18-Mar-36

15.47

15.33

(0.04)

16.2499 18-Apr-37

15.44

15.29

(0.03)

Source: Zedcrest Dealing Desk

  

Treasury Bills

The T-bills market remained significantly bearish in today’s session, as yields trended higher by c.30bps to c.13.01% on average. This came on the back of a further OMO auction by the CBN, where it elongated its offering into a 324-day tenor, the longest since last year August (25th). Market players responded by selling off the short tenured bills as high as 13.50% on some maturities, as they became increasingly risk off, taking the move as a sign of desperation on the part of the CBN.

 

Subscriptions at the OMO auction remained weak, with market players relatively uninterested in the shorter tenured offerings, whilst bidding as high as 14.50% for the 324-day Tenor. The CBN eventually sold a total of N300m of the 198-day and 81.65bn of the 324-day at 12.50% and 13.20% respectively.

 

The DMO is expected to offer a total of c.N136bn T-bills to rollover existing maturities. We expect rates to clear at c.30bps above their previous levels.

 

 

PMA Expectations

Tenor

Offer (N'bn)

Expected Rate (%)

Previous Rate (%)

91 days

6.22

11.00 - 11.50

11.00

182 days

4.00

12.30 - 12.80

12.30

364 days

126.09

13.00 - 13.50

13.05

 

 Secondary Market Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

4-Oct-18

13.00

12.50

0.00

1-Nov-18

13.50

13.00

1.20

6-Dec-18

13.75

13.00

1.85

3-Jan-19

13.50

12.85

0.50

14-Feb-19

13.10

12.70

0.10

14-Mar-19

12.85

12.60

0.25

4-Apr-19

13.00

12.50

0.50

18-Jul-19

13.10

12.50

0.60

Source: Zedcrest Dealing Desk 

 

 

Money Market

The OBB and OVN rates inched higher in today’s session, closing at 6.33% and 7.25% respectively. This came on the back of outflows from a further OMO auction (c.N82bn) by the CBN. The Net system liquidity is consequently estimated to close the day at c.N350bn from c.N430bn estimated opening levels.

 

We expect continued interventions by the CBN to pressure rates higher towards weekend.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

6.33

4.17

Overnight (O/N)

7.25

5.00

Source: FMDQ, Zedcrest Research

  

FX Market

The Naira/USD rate remained stable at the interbank, closing at N306.25/$. At the I&E FX window, a total of $220.61mn was traded in 331 deals, with rates ranging between N360.00/$ - N365.00/$. The NAFEX closing rate appreciated marginally by c.0.01% to N363.07/$ from N363.11/$ previously.

 

At the parallel market, the cash rates appreciated by 10k to N359.30/$, while transfer rates remained unchanged at N361.50/$.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.25

306.25

CBN SMIS

358.87

358.87

I&E FX Window

363.07

363.11

Cash Market

359.30

359.40

Transfer Market

361.50

361.50

Source: CBN, FMDQ, REXEL BDC 

 

Eurobonds

The NGERIA Sovereigns remained relatively flat, with yields ticking slightly higher by c.3bps on average, as investors were slightly bearish on the 23s, 32s and 47s.

 

The NGERIA Corps were also bearish, with the most selloffs seen on the DIAMBK 19s and Access 21s. We however witnessed slight interests on the FBNNL 21s and FIDBAN 22s.


Proshare Nigeria Pvt. Ltd.

 

 

Proshare Nigeria Pvt. Ltd.


Related News

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

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

3.       CBN Raises OMO Stop Rates, Succumbs to Investor Pressure PMA Holds this Wednesday

4.       Average T-Bills Yield Rose by 15bps to Close the Week at 12.36%

5.       Yields Trend Higher following Hike in CBN OMO Stop Rate

6.       Central Bank makes a U-turn, raises rate to 12.50% for the 182days OMO Bills

7.       System Liquidity support bullish interests in the Fixed Income Markets

8.       External Factors Propel Yields to New Frontiers

9.       Central Bank defies expectations, maintains rates at OMO auction

10.   Bearish Sentiments Persist in Bond Market, amid Bargain Hunting by Local RMCs

 

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