Bond Yields Tick Higher as Offshore Players selloff on the Mid to Long End

Culled—Proshare

3/8/2018/ Zedcrest Capital

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KEY INDICATORS

Indicator Value Commentary
Inflation 11.23% As at July 23, 2018, 38bps down from 11.61% recorded in May 2018.
MPR 14.00% Next MPC meeting scheduled for September 24 & 25, 2018
External Reserves $47.07bn As at August 3, 2018. A c.0.11% decrease from $47.12bn as at August 2, 2018.
Brent Crude $73.25pb As at August 3, 2018. A c.0.19% decrease from $73.39pb as at August 2, 2018

Bonds

The Bond market closed the week on a slightly bearish note, due to some selloff by offshore clients mostly on the 2027s and 2036s. Yields however ticked higher by just c.3bps on average, as sustained demand from local clients provided support for yields, which maintained a slight decline (-3bps) W-o-W.

In the coming week, we anticipate a slightly bearish outlook for yields, due to the recent bearish sentiments witnessed from offshore clients.

FGN Bonds
Description Bid (%) Offer (%) Day Change (%)
15.54 13-Feb-20 13.18 12.81 0.00
14.50 15-Jul-21 13.62 13.37 0.04
16.39 27-Jan-22 13.74 13.57 0.03
14.20 14-Mar-24 13.74 13.54 0.02
12.50 22-Jan-26 14.15 14.04 0.06
16.29 17-Mar-27 14.02 13.98 0.02
13.98 23-Feb-28 14.24 14.20 0.01
12.15 18-Jul-34 14.22 14.15 0.02
12.40 18-Mar-36 14.22 14.17 0.05
16.2499 18-Apr-37 14.14 14.06 0.03

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on a slightly bearish note, as the relatively buoyant level of system liquidity was pressured by CBN debits for retail FX provisioning by banks. Yields consequently inched slightly higher by c.6bps, with most activities focused on the shorter tenured maturities.

Opening next week, we expect yields to inch slightly higher, as the CBN is expected to sustain its FX interventions via a Wholesale SMIS on Monday. Yields should however moderate over the course of the week, with c.N452bn OMO T-bills maturing on Thursday.

 

 

Secondary Market Treasury Bills

Description Bid (%) Offer (%) Day Change (%)
13-Sep-18 11.25 10.80 (0.05)
4-Oct-18 10.00 8.00 (0.20)
1-Nov-18 11.00 10.90 0.00
6-Dec-18 11.90 11.70 (0.10)
3-Jan-19 12.05 11.90 0.00
14-Feb-19 12.05 12.00 (0.05)
14-Mar-19 12.15 11.00 0.05
4-Apr-19 12.15 11.20 0.05
18-Jul-19 11.30 10.65 0.10

Source: Zedcrest Dealing Desk 

Money Market

The OBB and OVN rates inched slightly higher to close the week at 4.33% and 5.33% respectively. This came on the back of a slight squeeze in system liquidity due to the retail FX provisioning by banks. System liquidity is however expected to remain relatively buoyant at c.450bn est, due to inflows from refunds of the last retail auction credited in the previous session.

We expect rates to inch slightly higher opening next week, due to anticipated outflows for wholesale SMIS on Monday. 

Money Market Rates
  Current (%) Previous (%)
Open Buy Back (OBB) 4.33 3.33
Overnight (O/N) 5.33 4.25

Source: FMDQ, Zedcrest Research  

FX Market

The Naira remained stable at N305.95 at the interbank market. It however depreciated at the I&E FX window, closing at N362.67/$ (from N362.31/$ previously).  At the parallel market, the cash and transfer market rates appreciated by 10k and 50k to N358.40/$ and N361.00/$ respectively, as the CBN sustained its interventions in the retail and BDC segments of the FX market.

Oil prices found some support today, with Brent crude futures holding steady at c.$73.25pb, as the US rig count fell slightly, while the Canadian rig count held steady. The CBN’s External reserves has however maintained a steady decline for the fourth consecutive week in a row, down to $47.09bn as at 2-Aug, from its last record high of $47.90bn on the 2nd of July.

FX Market
  Current (N/$) Previous ( N/$)
CBN Spot 305.95 305.95
CBN SMIS 330.00 330.00
I&E FX Window 362.67 362.31
Cash Market 358.40 358.50
Transfer Market 361.00 361.50

Source: CBN, FMDQ, REXEL BDC 

Eurobonds

The NGERIA Sovereigns traded on a relatively flat note, with slight interests seen on the shorter end of the curve (2022s). Yields consequently compressed by just a single basis point on average.

Activities in the NGERIA Corps were also relatively muted, with few interests seen on the GRTBNL 18s, Zenith 22s and ACCESS 21s sub. We also witnessed some further pullback on the SEPLLN 23s, which weakened by 25ppt to 99.75 (9.31%) on the bid.

Proshare Nigeria Pvt. Ltd.

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