Bond Yields Trend Higher as Supply Pressures Persist

Culled—Proshare

November 1, 2018/Zedcrest Capital

***NNPC, BP sign PMS supply agreement***

KEY INDICATORS

Indicator Value Commentary
Inflation 11.28% As at October 16, 2018, 5bps up from 11.23% recorded in August 2018.
MPR 14.00% Left Unchanged for the 11th Consecutive Time at the Sept. 25, 2018 MPC Meeting
External Reserves $42.00bn As at October 30, 2018. A c.0.14% decrease from $42.06bn on October 30, 2018
Brent Crude $72.87pb As at October 31, 2018. A c.4.31% decrease from $76.15pb on October 31, 2018

Bonds

The bond market was largely order driven in today’s session, with yields trending higher by c.8bps, due to sustained supply pressures, mostly on the 2028 bond.

We expect this trend to persist, as interests from local clients have been relatively subdued in recent sessions, with most interests now seen at and above the 15.50% level.  

Benchmark FGN Bonds
Description Bid (%) Offer (%) Day Change (%)
15.54 13-Feb-20 14.46 13.72 0.26
14.50 15-Jul-21 15.38 15.03 0.05
16.39 27-Jan-22 14.82 14.37 (0.02)
14.20 14-Mar-24 15.31 15.03 0.03
12.50 22-Jan-26 15.55 15.29 0.12
16.29 17-Mar-27 15.57 15.40 0.00
13.98 23-Feb-28 15.74 15.56 0.12
12.15 18-Jul-34 15.64 15.52 0.06
12.40 18-Mar-36 15.59 15.23 0.12
16.2499 18-Apr-37 15.29 15.22 0.03

Source: Zedcrest Dealing Desk  

Treasury Bills

The Tbills market traded on a relatively note, with slight interests seen on the short end of the curve, while traders reamined slightly bearish on the longer tenors due to the OMO floatation today. In a bid to mop up inflows from c.N382bn in OMO T-bill maturities, the CBN was able to sell a total of c.N518bn OMO bills, with the most interest (c.N454bn) on the 350-day bill offered, while rates remained unchanged from their previous levels on all tenors.

We expect the market to remain relatively stable tomorrow, with slight interests expected on the back of the still moderate level of system liquidity. This is however barring a further OMO sale by the CBN. 

OMO Auction Result – 1 November 2018
Tenor Rate (%) Offer (N’bn) Sub (N’bn) Sale (N’bn)
91 day 11.50 200.00 0.84 0.84
182 day 13.00 300.00 74.12 62.80
350 day 14.50 500.00 462.58 453.98

Source: Zedcrest Research 

Benchmark FGN Treasury Bills
Description Bid (%) Offer (%) Day Change (%)
6-Dec-18 13.00 12.55 (0.10)
3-Jan-19 13.00 12.60 (0.10)
14-Feb-19 12.75 12.65 (0.25)
14-Mar-19 13.00 12.80 0.10
4-Apr-19 13.00 12.85 0.00
18-Jul-19 13.00 12.70 (0.10)
1-Aug-19 14.00 13.40 0.30
12-Sep-19 14.50 14.20 0.10
3-Oct-19 14.30 14.20 0.00

Source: Zedcrest Dealing Desk 

Money Market

In line with our expectations, the OBB and OVN rates remained relatively unchanged at 4.50% and 4.92%, as the inflows from OMO maturities (c.N382bn) subdued the c.N518bn outflows in OMO sales, with system liquidity left at c.N400bn positive.

We expect rates to close the week at these levels, barring a further OMO sale by the CBN.

Money Market Rates
  Current (%) Previous (%)
Open Buy Back (OBB) 4.50 4.33
Overnight (O/N) 4.92 4.92

Source: FMDQ, Zedcrest Research

FX Market

At the Interbank, the Naira/USD rate remained stable at N306.60/$ (spot) and N362.82/$ (SMIS). At the I&E FX window, the NAFEX closing rate also remained unchanged at N363.54/$. Rates were also unchanged at the parallel market segment, with the cash and transfer rates closing at N361.00/$ and N364.00/$ respectively.

FX Market
  Current (N/$) Previous ( N/$)
CBN Spot 306.60 306.60
CBN SMIS 362.82 362.82
I&E FX Window 363.54 363.54
Cash Market 361.00 361.00
Transfer Market 364.00 364.00

Source: CBN, FMDQ, REXEL BDC 

Eurobonds

The NGERIA Sovereigns traded relatively flat on the day, with slight weakness still observed on the mid to long end of the curve. Yields were consequently higher by c.2bps on the day, with the post uptick seen on the Nov 2027.               

In the NGERIA Corps, interests were mostly focused on the longer dated tickers. The most interests were seen on the UBANL 22s and FIDBAN 22s, which gained c.0.15pct on the day.Proshare Nigeria Pvt. Ltd.

opan



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