Bond Yields Stay Flat amid Dampened Local Demand

Culled—Proshare

November 9, 2018/Zedcrest Capital

***Nigeria to Meet Investors Next Week on $2.9 Billion Eurobond***

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 $41.76bn As at November 8, 2018. A c.0.02% decrease from $41.77bn on November 7, 2018
Brent Crude $70.17pb As at November 9, 2018. A c.2.00% decrease from $71.60pb on November 8, 2018

Bonds

The Bond Market traded flat in today’s session, as market players wound up activities in what has been a characteristically weak trading week for bonds. Yields however compressed by c.6bps w/w, mostly due to gains on the Jul 2021s and Apr 2037s.

We expect weak trading sentiments to persist in the bonds space, due to a slow down in local client demand in recent sessions. We are also wary of the recent bearish movements in oil prices which have now fallen by about 20% from their highs in October.

Benchmark FGN Bonds
Description Bid (%) Offer (%) Day Change (%)
15.54 13-Feb-20 14.66 14.13 0.08
14.50 15-Jul-21 15.27 15.03 0.00
16.39 27-Jan-22 15.03 14.36 0.00
14.20 14-Mar-24 15.31 15.02 0.05
12.50 22-Jan-26 15.59 15.42 (0.02)
16.29 17-Mar-27 15.62 15.43 (0.02)
13.98 23-Feb-28 15.82 15.67 0.00
12.15 18-Jul-34 15.81 15.67 0.01
12.40 18-Mar-36 15.64 15.46 (0.05)
16.2499 18-Apr-37 15.39 15.29 0.00

Source: Zedcrest Dealing Desk 

Treasury Bills

The T-bills market remained relatively flat, with slight interests seen on the Dec/Jan maturities. This was as sytem liquidity remained moderatly robust, despite outflows for the Retail FX auction by the CBN today.

We expect yields to become slightly pressured going into the new week, as market players take positions in anticipation of the primary market auction slated for the 14th of November.

Benchmark FGN Treasury Bills
Description Bid (%) Offer (%) Day Change (%)
6-Dec-18 12.50 12.00 0.00
3-Jan-19 12.80 12.30 0.00
14-Feb-19 12.75 12.55 (0.25)
14-Mar-19 13.00 12.30 0.00
4-Apr-19 13.00 12.50 0.00
18-Jul-19 13.00 12.70 0.00
1-Aug-19 13.70 13.00 0.00
12-Sep-19 14.50 14.30 0.10
3-Oct-19 14.50 14.30 0.00

Source: Zedcrest Dealing Desk 

Money Market

The OBB and OVN rates inched slightly higher to close the week at 4.25% and 5.00% respectively. This was due to outflows for the retail FX auction by the CBN today. Despite the above, system liquidity is expected to close the week on moderately robust note at c.N350bn positive, due to cash injections from OMO maturities and retail FX refunds in the previous session.

In the coming week, we expect rates to remain relatively stable due to the moderate level of liquidity in the system.

Money Market Rates
  Current (%) Previous (%)
Open Buy Back (OBB) 4.25 3.67
Overnight (O/N) 5.00 4.25

Source: FMDQ, Zedcrest Research 

FX Market

At the Interbank, the Naira/USD rate remained unchanged at N306.65/$ (spot) and N360.85/$ (SMIS). However, at the I&E FX window the NAFEX closing rate appreciated marginally by c.0.01% to N363.60/$ from N363.65/$ previously.

At the parallel market segment, the cash rate appreciated by 10k to N361.70/$, while the transfer rate remained unchanged at N364.50/$.

FX Market
  Current (N/$) Previous ( N/$)
CBN Spot 306.65 306.65
CBN SMIS 360.85 360.85
I&E FX Window 363.60 363.65
Cash Market 361.70 361.80
Transfer Market 364.50 364.50

Source: CBN, FMDQ, REXEL BDC 

Eurobonds

The NGERIA Sovereigns turned firmly bearish in today’s session, as market players priced in possibilities for a new Eurobond issuance by the Nigerian FG. Yields were consequently higher by c.13bps on the day, with a c.1pct loss seen on the long end of the curve.               

In the NGERIA Corps, clients showed interest on the DIAMBK 19s and FIDBAN 22s. The DIAMBK 19s have now clawed back c.2.50pct from their recent lows following news of the S&P downgrade earlier this week.

Proshare Nigeria Pvt. Ltd.

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