Yields Continue to Rise as CBN Maintains Rates at 3rd Consecutive OMO Auction

Proshare

Tuesday, December 04, 2018/ 06:23AM / Zedcrest Capital

KEY INDICATORS

Indicator

Value

Commentary

Inflation

11.26%

As at November 21, 2018. A c.2bps down from 11.28% recorded in September 2018

MPR

14.00%

Left Unchanged for the 12th Consecutive Time at the Nov. 22, 2018 MPC Meeting

External Reserves

$42.17bn

As at November 30, 2018. A c.0.21% increase from $42.08bn on November 29, 2018

Brent Crude

$61.94pb

As at December 3, 2018. A c.4.03% increase from $59.54pb on November 30, 2018

 

Bonds

The Bond market opened the month on a relatively quiet note, as bearish sentiments continue to dominate trades in the market. Offered yields ticked higher on the benchmark securities leading to tighter spreads, but not as attractive as investors remain risk-off on bonds.

 

We expect the release of the December FGN bond auction offer circular to influence market direction later this week.

Benchmark FGN Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54 13-Feb-20

15.00

14.53

(0.43)

14.50 15-Jul-21

15.58

15.30

0.00

16.39 27-Jan-22

14.93

14.53

0.00

14.20 14-Mar-24

15.30

15.03

(0.01)

12.50 22-Jan-26

15.81

15.62

(0.01)

16.29 17-Mar-27

15.83

15.71

0.03

13.98 23-Feb-28

15.99

15.90

0.01

12.15 18-Jul-34

15.79

15.59

(0.08)

12.40 18-Mar-36

15.77

15.67

0.00

16.2499 18-Apr-37

15.76

15.65

(0.01)

Source: Zedcrest Dealing Desk

 

Treasury Bills

The T-bills market opened the month on a bearish note, as the CBN continued its mop up of system liquidity with a third day of consecutive OMO auctions. While benchmark securities remained largely untouched, yields expanded by c.25bps across the entire NTB curve especially at the short-end. The December maturities lost the most, as yields ticked higher by c.110bps in that space.

 

At the OMO auction, the CBN however sold a total of N54.62bn across three maturities on offer. The Apex bank maintained stop rates on the 192- and 353-day bills at 13.50% and 15.00% respectively, while there was no sale on the 87-day maturity offered.

The CBN is expected to maintain its aggressive mop-up strategy with multiple auctions per week. We maintain a cautious outlook on T-bills as we still see further correction of the NTB curve to these new levels.


OMO Auction Result

Tenor

Rate (%)

Offer (₦’bn)

Sub (₦'bn)

Sale (₦'bn)

87-days

Nil

20.00

Nil

Nil

192-days

13.50

30.00

14.06

14.06

353-days

15.00

100.00

43.06

40.56

 

Benchmark FGN Treasury Bills

Description

Bid (%)

Offer (%)

Day Change (%)

3-Jan-19

14.00

13.05

0.00

14-Feb-19

14.00

13.26

0.00

14-Mar-19

13.30

12.90

0.00

4-Apr-19

14.00

12.85

0.00

2-May-19

14.00

12.75

0.00

18-Jul-19

13.80

12.75

(0.20)

1-Aug-19

14.10

13.50

0.10

12-Sep-19

14.90

14.50

(0.05)

3-Oct-19

14.95

14.45

0.00

14-Nov-19

14.95

14.50

0.00

Source: Zedcrest Dealing Desk

 

Money Market

The Central Bank of Nigeria opened the day with an OMO auction amidst tight liquidity (estimated open at c.N32bn), in anticipation of inflows from October FAAC payment. With the sale of OMO securities (c.N54.62bn), Open Buy-Back (OBB) and Overnight (O/N) rates pushed up to 18.00% levels as the FAAC payments were delayed for most of the trading session.

 

The FAAC payments (estimated at c.N342bn) inflow eventually hit the system later day, crashing money market rates to close at 6.67% (OBB) and 7.67% (O/N). System liquidity is consequently estimated at c.N440bn as at close of business today.

 

Funding rates are expected to oscillate in tandem with the level of liquidity as the CBN looks to curtail excess cash from the system via aggressive OMO auctions.

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

6.67

16.57

Overnight (O/N)

7.67

17.36

Source: FMDQ, Zedcrest Research

 

FX Market

At the Interbank market, the Naira/USD rate appreciated by c.0.02% to close at N306.85/$ (from N306.80/$ previously (spot) and remained unchanged at N359.81/$ (SMIS). Trading at the I&E FX window was muted, with a total trade turnover of $24.01m traded in 219 deals, with rates ranging between N362.50/$ - N365.00/$. This is the least volume traded at the window since its inception in April 2017. The NAFEX closing rate appreciated by c.0.03% to close at N364.00/$ from N364.10/$ previously.

 

Expectation of increased supply saw the Naira gain at the parallel markets. The cash and transfer rates appreciated by c.0.54% and c.0.27% respectively, to close at N368.00/$ & N372.00/$ respectively.

 

FX Market

 

Current (N/$)

Previous ( N/$)

CBN Spot

306.85

306.80

CBN SMIS

359.81

359.81

I&E FX Window

364.00

364.10

Cash Market

368.00

370.00

Transfer Market

372.00

373.00

Source: CBN, FMDQ, REXEL BDC

 

Eurobonds

A positive start to the month as improvement in Oil prices saw positive sentiments in the Sub-Saharan Africa space, particularly towards the NGERIA Sovereign Eurobonds, but with little volumes traded. We witnessed interest across all the tracked tickers, yields consequently compressed by c.25bps on the average across the curve.

 

Similarly, the NGERIA Corps also saw positive sentiments across some tracked tickers. We witnessed demand for the ACCESS 21s Sub, DIAMBK 19s, FIDBAN 22s and ZENITH 22s papers and selling interests on the UBANL 22s. The DIAMBK 19s saw the most demand interest, as yields dropped by c.111bps on the day.

 

Proshare Nigeria Pvt. Ltd.



Proshare Nigeria Pvt. Ltd.


 

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