Culled—Proshare
November 7, 2018/Zedcrest Capital
***Diamond Bank Eurobond prices drop by c.500bps following S&P downgrade***
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 | $41.91bn | As at November 2, 2018. A c.0.10% decrease from $41.95bn on November 1, 2018 |
| Brent Crude | $71.62pb | As at November 6, 2018. A c.2.86% decrease from $73.73pb on November 5, 2018 |
Bonds
The FGN Bond market traded on a relatively quiet note today as risk-off sentiments remained across the entire yield curve. We saw more sellers on bonds today especially on the 2028s and 2034s bond maturities with low demand to match. The general expectation for an uptick in inflation figures and T-bills yields later this year continues to support a risk neutral approach for bonds in the near term.
Consequently, we expect the market to be order driven as market participants’ maintain a cautious outlook on bond yields.
| Benchmark FGN Bonds | |||
| Description | Bid (%) | Offer (%) | Day Change (%) |
| 15.54 13-Feb-20 | 14.45 | 14.19 | (0.09) |
| 14.50 15-Jul-21 | 15.27 | 15.12 | (0.14) |
| 16.39 27-Jan-22 | 15.13 | 14.41 | 0.07 |
| 14.20 14-Mar-24 | 15.31 | 15.16 | 0.00 |
| 12.50 22-Jan-26 | 15.60 | 15.43 | 0.01 |
| 16.29 17-Mar-27 | 15.65 | 15.41 | 0.10 |
| 13.98 23-Feb-28 | 15.77 | 15.67 | 0.03 |
| 12.15 18-Jul-34 | 15.79 | 15.64 | 0.08 |
| 12.40 18-Mar-36 | 15.68 | 15.46 | 0.07 |
| 16.2499 18-Apr-37 | 15.40 | 15.34 | (0.02) |
Source: Zedcrest Dealing Desk
Treasury Bills
Activities in the T-bills market was muted today as the CBN conducted an unexpected OMO auction, a divergence from the usual OMO T-bills maturity vs OMO auction trend in past sessions. We saw slight bearish sentiments on the short end of the curve, while the medium to long end of the curve traded flat due to more supply of OMO T-bills.
The CBN sold a total of N316.23Bn OMO T-bills across three maturities, 121-, 184- and 338-days, while maintaining stop rates at 11.50%, 13.00% and 14.50% respectively. We expect the market to trade with bearish sentiments due to continuous OMO auctions and subsequent retail FX sales expected later this week.
| OMO Auction Results | ||||||||
| Tenor | Rate (%) | Offer (N’bn) | Sub (N’bn) | Sale (N’bn) | ||||
| 121-day | 11.50 | 50.00 | 0.21 | 0.21 | ||||
| 184-day | 13.00 | 150.00 | 77.37 | 73.30 | ||||
| 338-day | 14.50 | 300.00 | 245.22 | 242.72 | ||||
|
Benchmark FGN Treasury Bills | ||||||||
| Description | Bid (%) | Offer (%) | Day Change (%) | |||||
| 6-Dec-18 | 12.50 | 11.95 | 1.00 | |||||
| 3-Jan-19 | 12.80 | 12.25 | 0.05 | |||||
| 14-Feb-19 | 12.70 | 12.40 | 0.10 | |||||
| 14-Mar-19 | 12.80 | 12.00 | 0.15 | |||||
| 4-Apr-19 | 12.75 | 12.25 | 0.00 | |||||
| 18-Jul-19 | 13.00 | 12.70 | 0.00 | |||||
| 1-Aug-19 | 13.50 | 13.00 | (0.45) | |||||
| 12-Sep-19 | 14.35 | 14.25 | 0.00 | |||||
| 3-Oct-19 | 14.50 | 14.25 | 0.10 | |||||
Source: Zedcrest Dealing Desk
Money Market
Money market rates inched up by c.100bps to close at 4.83% and 5.42% for OBB and OVN rates respectively, as the CBN sold N316.23Bn OMO T-bills in a bid to manage excess system liquidity . We expect CBN to remain aggressive with their liquidity mop-up exercise as system liquidity remains robust closing the day at c.N483bn. Funding rates are consequently expected to oscillate in tandem with the level of liquidity in the system.
| Money Market Rates | ||
| Current (%) | Previous (%) | |
| Open Buy Back (OBB) | 4.83 | 3.08 |
| Overnight (O/N) | 5.42 | 3.58 |
Source: FMDQ, Zedcrest Research
FX Market
At the Interbank, the Naira/USD spot and SMIS rates remained unchanged to close at N306.65/$ and N361.45/$ respectively. However, at the I&E FX window, the NAFEX closing rate appreciated by c.0.03% to N363.54/$ from N364.64/$ previously.
At the parallel market segment, the cash and transfer rates remained unchanged at N361.00 and N364.50/$ respectively.
| FX Market | ||
| Current (N/$) | Previous ( N/$) | |
| CBN Spot | 306.65 | 306.65 |
| CBN SMIS | 361.45 | 361.45 |
| I&E FX Window | 363.54 | 363.64 |
| Cash Market | 361.00 | 361.00 |
| Transfer Market | 364.50 | 364.50 |
Source: CBN, FMDQ, REXEL BDC
Eurobonds
The NGERIA Sovereigns posted relatively little gains as sentiment for sovereigns in Sub-Saharan Africa space improved following positive news from Mozambique and Zimbabwe. Yields consequently rose marginally by c.2bps.
The main highlight of today’s trading session centered on DIAMBK 19s, with yields rising by a whopping c.600bps from the previous days close in reaction to the short- and long-term issuer credit rating downgrade of Diamond Bank PLC to ‘CCC+/C’ by S&P Global Ratings. The bond traded around 25.00%-27.00% levels with more local buyers taking advantage of the high yield despite the recent downgrade.
Other NGERIA Corps showed positive investor sentiment, as Zenith 19s, Access Sub-21s and SEPLLN 23s also posted average gains of c.0.30pct (in yield terms) on the day.
