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Market reacts to DMO’s NTB Redemption Notice

Proshare

Tuesday, December 12, 2017 6:00PM / @ZedcrestCapital 

***
DMO to redeem N198 billion Treasury bills via $500m Eurobond receipts***

***Plans to resume NTB Auction by 3
rd January 2018***

***Will offer N50bn each of the 5 and 10-yr FGN bonds at an auction tomorrow***
 

KEY INDICATORS

Inflation

15.91%

Declined by 0.07% in October from 15.98% in September 2017

MPR

14.00%

Left unchanged at 14.00% at the MPC meeting of November 2017

External Reserves

$36.01billion

Accreted 1.96% as at 8th December from $35.86 as at 7th December 2017

Brent Crude

$64.85pb

Rose by 1.23% from $64.06pb on 11th December 2017


Bonds
The bond market shed another 21bps in today’s session, as the market reacted to news of the DMO’s plan to redeem all maturing NTBs in the month of December. Trades were however scanty with the most trades done on the 2027 bonds, due to the wideness in market spreads across the curve. Yields on the 27s traded as low as 13.80% (bid), but retraced slightly to close at 13.92% upon announcement by the DMO of plans to resume NTB issuances by 3rd January. We expect a further decline in yields tomorrow, due to our anticipation of significant oversubscriptions at tomorrow’s auction.  

Table 1: Benchmark FGN Bond Yields

Description

Bid (%)

Offer (%)

Day Change (%)

16.00 29-Jun-19

13.61

13.54

(0.33)

15.54 13-Feb-20

13.64

13.57

0.08

14.50 15-Jul-21

13.98

13.91

(0.34)

16.39 27-Jan-22

13.77

13.70

(0.31)

14.20 14-Mar-24

13.98

13.91

(0.09)

12.50 22-Jan-26

14.00

13.93

(0.24)

16.29 17-Mar-27

13.92

13.85

(0.33)

12.15 18-Jul-34

13.87

13.80

(0.23)

12.4018-Mar-36

13.93

13.86

(0.08)

16.25 18-Apr-37

13.74

13.67

(0.20)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Source: Zedcrest Dealing Desk 

Table 2: Bond Auction Expectations

Tenor

Offer (N'bn)

Expected Stop Rate (%)

FGN Jul-2021

50.00

13.75 - 13.85 

FGN Mar-2027

50.00

13.80 - 13.90 

 
Treasury Bills
The T-bills market also reacted aggressively to the news by the DMO, as offers across the benchmark NTB curve opened initially at 5.00%. The market however traded most bills around 8% - 12%, with slight sell observed on some bills after the NTB issuance announcement by the CBN. Average T-bill yields consequently dropped 128bps to close today at 14.26%. We expect rates in the market to be relatively stable around these levels tomorrow, but with slight profit taking expected on some maturities.  

Table 3: Benchmark Treasury Bills Rates

Description

Bid (%)

Offer (%)

Day Change (%)

4-Jan-18

12.00

11.75

(2.00)

1-Feb-18

12.70

12.45

(2.90)

1-Mar-18

12.00

11.75

(2.00)

5-Apr-18

11.25

11.00

(2.25)

3-May-18

12.00

11.75

(2.00)

14-Jun-18

12.80

12.55

(1.70)

5-Jul-18

11.50

11.25

(3.50)

2-Aug-18

13.00

12.75

(2.50)

20-Sep-18

12.50

12.25

(1.70)

4-Oct-18

12.30

12.05

(1.50)

1-Nov-18

12.45

12.20

(0.80)

Source: Zedcrest Dealing Desk 

Money Market
The OBB and OVN rates declined further to close today at 2.33% and 2.92%, as system liquidity remained significantly buoyant at about N439billion positive. We expect rates to be relatively stable at these levels tomorrow, as there are no significant outflows expected from the system.

Table 4: Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

2.33

3.25

Overnight (O/N)

2.92

4.08

Source: FMDQ, Zedcrest Research 

FX Market
The CBN Official spot rate appreciated marginally by 0.02% to N306.30/$ from N306.35/$ recorded in the previous session. Rates at the Investors and exporters FX window also appreciated by 13k to close at N360.37/$. Rates at the parallel market however depreciated slightly by 10k to close at N361.50/$. 

Table 5: FX Rates

 

Current (N/$)

Previous (N/$)

CBN Spot

306.30

306.35

CBN SMIS

330.00

330.00

I&E FX Window

360.37

360.50

Parallel Market

361.50

361.40

Source: CBN, FMDQ, REXEL BDC 

For more details email research@zedcrestcapital.com or call the dealing desk via 01-6311667 
 

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