Sustained decline in Fixed Income yields as Market Players stay bullish

0
197

KEY INDICATORS

Inflation

15.91%

Declined by 0.07% in October from 15.98% in September 2017

MPR

14.00%

Left unchanged at 14.00% at the MPC meeting of November 2017

External Reserves

$38.20billion

Accreted 9.71% as at 5thDecember from $34.82bn on 29thNovember 2017

Brent Crude

$61.87pb

Remained stable at previous day price of $61.87pb – 6th December 2017

Bonds
The Bond market maintained its bullish run in today’s session with sustained demand witnessed especially on the 5-, 10- and 20-yr bonds. This was as market players continued to speculate a further decline in the sovereign yield curve, owing to the discontinuance of OMO T-bill issuance by the CBN. Average bond yields consequently declined by a further 6bps to close today at 14.45%. We expect this trend to persist, but at a slower pace, as market players are expected to trade cautiously in anticipation of the bond auction next week.

Table 1: Benchmark FGN Bond Yields

Description

Bid (%)

Offer (%)

Day Change (%)

16.00 29-Jun-19

14.49

14.42

(0.05)

15.54 13-Feb-20

14.40

14.33

(0.09)

14.50 15-Jul-21

14.61

14.54

(0.09)

16.39 27-Jan-22

14.35

14.28

0.08

14.20 14-Mar-24

14.60

14.53

(0.03)

12.50 22-Jan-26

14.55

14.48

(0.09)

16.29 17-Mar-27

14.61

14.54

(0.11)

12.15 18-Jul-34

14.31

14.24

(0.07)

12.40 18-Mar-36

14.31

14.24

(0.01)

16.25 18-Apr-37

14.28

14.21

(0.12)

KEY INDICATORS

Inflation

15.91%

Declined by 0.07% in October from 15.98% in September 2017

MPR

14.00%

Left unchanged at 14.00% at the MPC meeting of November 2017

External Reserves

$38.20billion

Accreted 9.71% as at 5thDecember from $34.82bn on 29thNovember 2017

Brent Crude

$61.87pb

Remained stable at previous day price of $61.87pb – 6th December 2017

Bonds
The Bond market maintained its bullish run in today’s session with sustained demand witnessed especially on the 5-, 10- and 20-yr bonds. This was as market players continued to speculate a further decline in the sovereign yield curve, owing to the discontinuance of OMO T-bill issuance by the CBN. Average bond yields consequently declined by a further 6bps to close today at 14.45%. We expect this trend to persist, but at a slower pace, as market players are expected to trade cautiously in anticipation of the bond auction next week.

Table 1: Benchmark FGN Bond Yields

Description

Bid (%)

Offer (%)

Day Change (%)

16.00 29-Jun-19

14.49

14.42

(0.05)

15.54 13-Feb-20

14.40

14.33

(0.09)

14.50 15-Jul-21

14.61

14.54

(0.09)

16.39 27-Jan-22

14.35

14.28

0.08

14.20 14-Mar-24

14.60

14.53

(0.03)

12.50 22-Jan-26

14.55

14.48

(0.09)

16.29 17-Mar-27

14.61

14.54

(0.11)

12.15 18-Jul-34

14.31

14.24

(0.07)

12.40 18-Mar-36

14.31

14.24

(0.01)

16.25 18-Apr-37

14.28

14.21

(0.12)

Treasury Bills
The T-bills market remained aggressively bullish in today’s session, with rates on most of the medium and long tenured maturities trading below 16% and 15% respectively. Market volumes were however lower than in the previous session as most market players preferred to hold on to their long positions due to the significant decline in supply of T-bills to the market. Average T-bill yields consequently declined by 25bps to close today at 16.56%. We expect the market to be scantily traded tomorrow, but with a sustained decline in yields as market players continue to trade on the “NO OMO” trend.

Table 2: Benchmark Treasury Bills Rates

Description

Bid (%)

Offer (%)

Day Change (%)

4-Jan-18

16.00

15.75

0.00

1-Feb-18

16.00

15.75

(0.50)

1-Mar-18

14.00

13.75

0.00

5-Apr-18

15.45

15.20

(0.15)

3-May-18

15.65

15.40

(0.60)

14-Jun-18

15.50

15.25

(0.25)

5-Jul-18

15.60

15.35

(0.20)

2-Aug-18

15.50

15.25

0.00

20-Sep-18

14.85

14.60

(0.15)

4-Oct-18

14.75

14.50

(0.25)

1-Nov-18

14.25

14.00

(0.75)

Source: Zedcrest Dealing Desk

Money Market
The OBB and OVN rates crashed by 750bps to 6.33% and 7.33% due to c.N110bn OMO maturity inflows which improved system liquidity to c.N100bn long, from a negative opening figure of c.N10bn. We expect rates to remain stable at single digit levels tomorrow, barring any significant OMO T-bill or FX intervention by the CBN.

Table 3: Money Market Rates

Current (%)

Previous (%)

Open Buy Back (OBB)

6.33

13.83

Overnight (O/N)

7.33

14.83

Source: FMDQ, Zedcrest Research

FX Market
The CBN Official spot rate appreciated marginally by 0.02% to N306.45/$ from N306.50/$ recorded in the previous session. Rates at the Investors and exporters FX window closed at N360.31/$ from N360.93/$ in the previous session. Rates at the parallel market also appreciated slightly to close at N361.40/$.

Table 4: FX Rates

Current (N/$)

Previous ( N/$)

CBN Spot

306.45

306.50

CBN SMIS

330.00

330.00

I&E FX Window

360.31

360.93

Parallel Market

361.40

361.50

Source: CBN, FMDQ, REXEL BDC

For more details email research@zedcrestcapital.com or call the dealing desk via 01-6311667

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