Massive Rally on Eurobonds as US FED Strikes Dovish Tone

Proshare

Friday, January 31, 2019   06:20 AM / Zedcrest Capital

***Manufacturing PMI Declines by 4.2pct in January*** - CBN

KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.44%

As at January 16, 2019. A c.16bps increase from 11.28% recorded in November 2018

MPR

14.00%

Left Unchanged for the 13th Consecutive Time at the Jan. 22, 2019 MPC Meeting

External Reserves

$43.18bn

As at January 30, 2019. A c.0.01% decrease from $43.17bn on January 29, 2019

Brent Crude

$62.05pb

As at January 31, 2019. A c.0.58% increase from $61.69pb on January 30, 2018

 

Bonds

The Bond market remained slightly bullish on the back of sustained demand on the 2028 bond which compressed by c.15bps (1ppt) on the day. This was mostly due to some short covering by market players who missed out on the bond at the previous day’s auction. Offers also pulled lower across most maturities as traders rode on the recent bullish wave, compressing yields by c.3bps on average.

 

Whilst we expect this trend to persist in the near term, we believe that yields would reverse slightly higher as we approach the forthcoming elections and next bond auction due in three weeks.

 

Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

15.20

14.46

0.01

14.50 15-Jul-21

15.37

15.17

(0.02)

16.39 27-Jan-22

14.91

14.52

(0.15)

14.20 14-Mar-24

15.01

14.61

0.05

12.50 22-Jan-26

15.31

14.95

0.05

16.29 17-Mar-27

15.18

15.01

0.02

13.98 23-Feb-28

15.40

15.29

0.04

12.15 18-Jul-34

15.31

15.05

0.01

12.40 18-Mar-36

15.13

15.08

(0.09)

16.2499 18-Apr-37

15.13

14.99

(0.03)

Source: Zedcrest Dealing Desk

 

Treasury Bills

The T-bills market traded on a relatively flat note as market players were constrained by the c.N450bn OMO sale by the CBN. We however witnessed sustained demand interests on the short end of the curve (Feb – May) where yields compressed by c.20bps on average.

We expect the market to become slightly bearish tomorrow, as system liquidity is expected to be drained by outflows for Bond Auction settlement and the bi-weekly retail FX auction by the CBN.

 

Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

14-Feb-19

13.00

12.50

0.00

14-Mar-19

12.75

12.00

(0.05)

4-Apr-19

12.75

12.05

0.00

2-May-19

11.75

11.55

0.00

13-Jun-19

12.80

12.00

0.00

18-Jul-19

13.50

12.00

0.00

1-Aug-19

13.50

13.00

0.00

12-Sep-19

14.60

14.20

0.05

3-Oct-19

14.85

14.60

0.00

14-Nov-19

14.95

14.80

0.00

5-Dec-19

15.00

14.85

0.05

Source: Zedcrest Dealing Desk

 

 

 

Money Market

Rates in the money market retraced higher by c.7pct as outflows for today’s OMO sale compressed system liquidity to cN280bn from c.N540bn opening the day. The OBB and OVN rates consequently ended the session at 10.29% and 11.36% respectively.

We expect funding rates to trend higher tomorrow, due to expected outflows for Bond Auction settlement and funding for a Retail FX auction by the CBN.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

10.29

3.83

Overnight (O/N)

11.36

4.50

Source: FMDQ, Zedcrest Research

 

 

 

FX Market

At the Interbank, the Naira/USD rate remained unchanged at N306.75/$ at the spot market, while the CBN strengthened the SMIS rate by c.0.24% to N357.10/$. The NAFEX rate in the I&E window appreciated further by c.0.08% to N363.03/$. The cash and transfer rates at the parallel market also appreciated by c.0.20% and c.0.27% to N358.00/$ and N365.00/$ respectively.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.75

306.75

CBN SMIS

357.10

357.97

I&E FX Window

363.03

363.32

Cash Market

358.00

358.70

Transfer Market

365.00

366.00

Source: CBN, FMDQ, REXEL BDC 

 

 

 

Eurobonds

The NGERIA Sovereigns were rallied significantly by c.40bps in today’s session, as investors became increasingly risk on the SSAs and wider EM space on the backdrop of a hold in rates and slightly more dovish tone by the US FED at the end of its FOMC meeting yesterday. The Fed in their accompanying statement implored that because of recent developments in global economic and financial conditions, they “will be patient” in adjusting monetary policy.

 

The NGERIA Corps were however relatively quiet except for slight interests on the UBANL and FIDBAN 22s.

 

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

 

Related News

1.       Summary of January 2019 FGN Bond Auction Results

2.      Bond Auction Rates Clear Lower With Increased Demand on the 10-yr

3.      Nigerian Eurobonds Turn Bearish Ahead of US FOMC Decision

4.      Sustained High Demand On Short-Term Bills Pressure Average Rates To 13.4% W-o-W

5.      Average Money Market Rate Fell By 3.21% To Settle At 12.54%

6.      Bond Market: Safety In A Season Of Uncertainty

7.      Bond Yields Moderate on Renewed Demand Interests

8.     T-Bills Ease up Bullish Run as CBN Sells c.N410bn OMO Bills

9.      Invest in FGN Monthly Bond Auction – January 2019

10.  DMO to Offer c.N400bn of FGN Bonds in Q1 2019


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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