Slight Uptick in Bond Yields as Market Players anticipate Dual Bond and T-bill PMAs

Proshare

Wednesday March 21,2018/9.00AM/Zedcrest Capital 

KEY INDICATORS

Inflation

14.33%

Declined by 0.80% in February from 15.13% in January 2018

MPR

14.00%

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

External Reserves

$44.60billion

Accreted 1.57% as at 16 March from $44.47bn as at 15 March 2018

Brent Crude

$67.11pb

Rose by 1.90% from $65.86pb on 19 March 2018


Bonds

The bond market remained very quiet in today’s session, due to the relatively tight system liquidity and expectations of fresh supply from the bond auction tomorrow. Yields consequently ticked higher by c.3bps, with slight sell observed on the 2027 and 2021 bonds. We expect the market to be relatively stable tomorrow, with the auction stop rates expected to clear within market context. 

Benchmark FGN Bond Yields

Description

Bid (%)

Offer (%)

Day Change (%)

16.00 29-Jun-19

13.60

13.53

0.12

15.54 13-Feb-20

13.40

13.33

(0.03)

14.50 15-Jul-21

13.52

13.45

0.00

16.39 27-Jan-22

13.57

13.50

0.07

14.20 14-Mar-24

13.55

13.48

(0.02)

12.50 22-Jan-26

13.56

13.49

0.01

16.29 17-Mar-27

13.60

13.53

0.06

12.15 18-Jul-34

13.56

13.49

0.01

12.40 18-Mar-36

13.35

13.28

0.03

16.25 18-Apr-37

13.35

13.28

0.01

Source: Zedcrest Research 

Bond Auction Expectations

Tenor

Offer (N'bn)

Expected Stop Rate (%)

Jul 2021

10.00

13.40 - 13.60

Mar 2025

30.00

13.50 - 13.70

Feb 2028

30.00

13.50 - 13.70


Treasury Bills
The T-bills market traded on a slightly bearish note with yields ticking higher by c.5bps on average, due to the relatively tight liquidity in the market. We however saw market players’ cherry-pick on some high yielding bills including the 21-Jun and 20-sep bills which are the next 91– and 182-day bills to be issued at tomorrow’s auction. We also note that the CBN did not conduct an OMO auction in today’s session and is not expected to do so until Thursday, when we expect inflows from maturing OMO bills. We expect the market to be relatively calm tomorrow as market players are expected to shift focus to the primary market Auction. We might however witness slight bullish sentiments due to the expected OMO maturity inflows on Thursday.  

Benchmark Treasury Bill Yields

Description

Bid (%)

Offer (%)

Day Change (%)

12-Apr-18

13.20

13.05

(0.40)

3-May-18

14.50

14.35

(0.15)

14-Jun-18

13.95

13.80

(0.05)

5-Jul-18

14.20

14.05

0.10

2-Aug-18

14.10

13.45

0.15

13-Sep-18

14.05

13.90

0.20

4-Oct-18

14.20

14.05

0.00

1-Nov-18

14.40

14.25

0.00

3-Jan-19

13.30

13.15

0.00

14-Feb-19

13.25

13.10

0.00

Source: Zedcrest Research  


T-Bills Auction Expectations

Tenor

Offer (N'bn)

Sale (N'bn)

91 days

5.40

11.65 - 11.85

182 days

26.98

12.90 - 13.10

364 days

21.58

13.10 - 13.30

  
Money Market

The OBB and OVN rates rose by about 8 percent points to close today at 30.00% and 32.25% respectively. This came on the backdrop of the squeeze in system liquidity from the OMO and wholesale FX sales in the previous session. With system liquidity currently estimated at c.N45bn positive, we expect rates to remain elevated as there are no significant inflows expected into the system tomorrow.  


Money Market Rates

Current (%)

Previous (%)

Open Buy Back (OBB)

30.00

22.50

Overnight (O/N)

32.25

25.00

Source: FMDQ, Zedcrest Research, FX Market  

The
Interbank rate remained stable at its previous rate of N305.70/$, with the CBN’s external reserves recorded to have improved by 1.57% to $44.60bn as of 16 March. The NAFEX rate appreciated by 0.04% to close at N360.30/$ with total volume traded compressing marginally by 1.36% to $166m. Rates in the Unofficial market however depreciated by 0.03% to N361.30/$.
  


FX Rates

 

Current (N/$)

Previous ( N/$)

CBN Spot

305.70

305.70

CBN SMIS

330.00

330.00

I&E FX Window

360.30

360.45

Parallel Market

361.30

361.20

Source: CBN, FMDQ, REXEL BDC  


Eurobonds

Investors continued to sell off on the NGERIA Sovereigns in today’s session, with significant volumes traded across the curve, especially on the 30s and 38s. The long end continued to be the most hit with yields rising as high as 7bps. This came on the backdrop of consensus expectations for a rate hike by the US FED in its FOMC meeting to be concluded tomorrow.

The
Nigerian Banks did not fare much better, with most tickers largely dominated by bearish sentiments, but on a more moderate tone than in the NGERIA sovereign space. The only exception was the Access 10.50% 2021s which witnessed slightly favorable investor demand with its yield declining by c.5bps from its previous day levels 

We expect this trend to persist tomorrow, as market players widely anticipate a 25bps hike in the
FED Funds rate, with increased expectations of  >3 rate hikes this year.
 

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