Nigeria’s Bond Yields surge in reaction to political moods

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    *Osinbajo meets DSS’ most senior director, Seiyefa, Magu***

    ***Nigerian Central Bank ‘in the Mood for Tightening,’*** – Nnanna

    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 $46.87bn As atAugust 6, 2018. A c.0.30% decreasefrom $47.01bn as at August 3, 2018.
    Brent Crude $74.40pb As at August 7, 2018. A c.0.65% increasefrom$73.92pb as atAugust 6, 2018

    Bonds

    The Bond market witnessed a spur of activity in today’s session, as a flurry of headline political news dominated trading sentiments over the course of the session. We witnessed continued selloff by offshore clients mostly on the 2027s and 2028s as tensions in the political space further strengthened their recent bearish position on the market.

    We also noted a shift in the date of the scheduled bond auction for the Month of August to 15-Aug from the earlier scheduled date of 22-Aug. This is also believed to have influenced some selloff, especially on the 2028s, as market players anticipate renewed supply of bonds at the auction now scheduled to hold next week. Yields consequently shot higher to close at c.43bps above their previous levels as most market players pulled off on their bids following some selloff on the 2027s to c.14.38% towards the close of trading.

    The aforementioned notwithstanding, we noticed a relatively slower rate of change in offer prices across other maturities, with slight demand even observed on the 2036s. We consequently expect a narrowing of bid-offer spreads in tomorrow’s session, but with the broader market sentiment expected to remain bearish as we approach the forthcoming bond auction.

    FGN Bonds
    Description Bid (%) Offer (%) Day Change (%)
    15.54 13-Feb-20 13.65 13.02 0.37
    14.50 15-Jul-21 14.27 13.43 0.63
    16.39 27-Jan-22 14.13 13.81 0.39
    14.20 14-Mar-24 14.46 13.55 0.79
    12.50 22-Jan-26 14.75 14.16 0.63
    16.29 17-Mar-27 14.42 14.26 0.35
    13.98 23-Feb-28 14.47 14.27 0.23
    12.15 18-Jul-34 14.50 14.13 0.27
    12.40 18-Mar-36 14.63 14.19 0.43
    16.2499 18-Apr-37 14.38 14.11 0.23

    Source: Zedcrest Dealing Desk

    Treasury Bills

    The T-bills market remained relatively flat, with most activities focused on the shorter end of the curve. Yields consequently remained relatively flat on average.

    We expect a slight downtrend in yields tomorrow, on the back of a relatively buoyant level of system liquidity. Trading activities are however still expected to be focused on the shorter end of the curve

    Secondary Market Treasury Bills
    Description Bid (%) Offer (%) Day Change (%)
    13-Sep-18 11.30 10.70 0.00
    4-Oct-18 10.05 9.00 (0.25)
    1-Nov-18 11.20 10.85 0.00
    6-Dec-18 12.00 11.65 0.05
    3-Jan-19 12.10 11.90 0.05
    14-Feb-19 12.10 11.95 0.05
    14-Mar-19 12.00 11.75 (0.15)
    4-Apr-19 12.10 11.40 0.00
    18-Jul-19 11.40 10.85 0.05


    Source: Zedcrest Dealing Desk

     

    Money Market

    The OBB and OVN rates remain relatively unchanged, closing today at 7.52% and 8.42% respectively, as there were no significant outflows from the system which opened today at c.N330bn positive according to figures published by the CBN.

    We expect rates to remain stable tomorrow, as there are no significant outflows expected from the system.

     

    Money Market Rates
      Current (%) Previous (%)
    Open Buy Back (OBB) 7.58 7.92
    Overnight (O/N) 8.42 8.50

    Source: FMDQ, Zedcrest Research

     

    FX Market

    The Naira remained stable N306.00/$at the interbank market. It however depreciatedby 0.09% at the I&E FX window, closing at N362.30/$ (from N361.96/$ previously).At the parallel market, the cash and transfer market rates remained stable atN358.50/$ and N361.50/$ respectively.

    Oil prices strengthened furthertoday, with Brent crude futures rising by c.50cents to $74.40pb, even as the Chinese Yuan Denominated futures jumped to an all-time high, creeping above the Brent and WTI. The CBN’s External reserves has however maintained a steady decline, falling by c.0.30% to $46.87bn as at 6-Aug, from $47.01bn on the 3rdof August.

    FX Market
      Current (N/$) Previous ( N/$)
    CBN Spot 306.00 306.00
    CBN SMIS 330.00 330.00
    I&E FX Window 362.30 361.96
    Cash Market 358.50 358.50
    Transfer Market 361.50 361.50

    Source: CBN, FMDQ, REXEL BDC

    Eurobonds

    The NGERIA Sovereignsturned bearish in today’s session, with yields rising by c.7bps on average. We witnessed the most selloff on the Jan 2021 which rose by c.12bps, consequently reversing recent gains. The 2038s however lost the most in price terms down by c.0.70pct (+6bps) d/d.

    Activities in the NGERIA Corpsremained relatively muted, except for slight demand for the FBNNL 21s, following redemption of the FBNNL 20s today. We also witnessed slight selloff on the ACCESS 21s Snr and UBANL 22s.

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