Culled—Proshare
November 12, 2018/Zedcrest Capital
***Nigeria Eyes Return to Dollar Bond Market***
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 | $41.73bn | As at November 9, 2018. A c.0.07% decrease from $41.76bn on November 8, 2018 |
| Brent Crude | $71.05pb | As at November 12, 2018. A c.1.25% increase from $70.17pb on November 9, 2018 |
Bonds
Despite news of an impending Eurobond Issuance by the Nigerian FG, market players remained signifcantly risk off the Domestic FGN bonds with yields rising by c.11bps d/d. This came on the back of selloffs mostly on the Feb 2028s and Jul 2034s which were sold off to 15.85% and 16.00% respectively. At an average level of c.15.40%, yields are now at a 13-month high last seen in october 2017.
We understand the continued uptick in yields to be closely linked to expectations for further bearish pressures ahead of the forthcoming elections and more recently, expected price and funding pressures from the recently passed 2018 budget, and minimum wage agreement @ N30,000.
Our outlook remains bearish, with yields expected to break the 16% mark sooner or later, due to weak demand interests and heightened risk off sentiments.
| Benchmark FGN Bonds | |||
| Description | Bid (%) | Offer (%) | Day Change (%) |
| 15.54 13-Feb-20 | 14.84 | 14.13 | 0.18 |
| 14.50 15-Jul-21 | 15.42 | 15.13 | 0.15 |
| 16.39 27-Jan-22 | 15.12 | 14.38 | 0.09 |
| 14.20 14-Mar-24 | 15.31 | 15.16 | 0.00 |
| 12.50 22-Jan-26 | 15.61 | 15.45 | 0.02 |
| 16.29 17-Mar-27 | 15.75 | 15.55 | 0.13 |
| 13.98 23-Feb-28 | 15.99 | 15.88 | 0.17 |
| 12.15 18-Jul-34 | 15.89 | 15.77 | 0.08 |
| 12.40 18-Mar-36 | 15.71 | 15.51 | 0.07 |
| 16.2499 18-Apr-37 | 15.64 | 15.42 | 0.25 |
Source: Zedcrest Dealing Desk
Treasury Bills
Market players were better offered in the T-bills space as they looked to take profits in lieu of the forthcoming PMA and OMO auctions expected Wednesday/Thursday. Yields were however relatively flat on the day, due to the robustly positive level of liquidity in the system.
We expect yields to maintain a gradual uptick especially on the mid to long end of the curve, as market players anticipate more attractive offerings at auction.
| Benchmark FGN Treasury Bills | |||
| Description | Bid (%) | Offer (%) | Day Change (%) |
| 6-Dec-18 | 12.25 | 11.75 | (0.25) |
| 3-Jan-19 | 12.80 | 12.30 | 0.00 |
| 14-Feb-19 | 12.70 | 12.55 | (0.05) |
| 14-Mar-19 | 13.00 | 12.50 | 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 | 13.10 | 0.00 |
| 12-Sep-19 | 14.45 | 14.30 | (0.05) |
| 3-Oct-19 | 14.50 | 14.35 | 0.00 |
Source: Zedcrest Dealing Desk
Money Market
The OBB and OVN rates opened the week slightly higher at 6.08% and 7.00% respectively, due to funding for a Wholesale FX auction by the CBN which is estimated to have compressed system liquidity by c.N75bn to c.N480bn from c.N555bn previously.
We expect rates to remain relatively stable tomorrow, as there are no significant outflows expected.
| Money Market Rates | ||
| Current (%) | Previous (%) | |
| Open Buy Back (OBB) | 6.08 | 4.25 |
| Overnight (O/N) | 7.00 | 5.00 |
Source: FMDQ, Zedcrest Research
FX Market
At the Interbank, the NGN/USD spot rate depreciated by c.0.02% to N306.70/$, while the SMIS rate remained unchanged at N360.85/$. At the I&E FX window a total of $89.23mn was traded in 186 deals, with rates ranging between N356.00/$ – N364.70/$. The NAFEX closing rate depreciated by c.0.08% to N363.89/$ from N363.60/$ previously.
At the parallel market segment, the cash rate appreciated further by 20k to N361.50/$, while the transfer rate remained unchanged at N364.50/$.
| FX Market | ||
| Current (N/$) | Previous ( N/$) | |
| CBN Spot | 306.70 | 306.65 |
| CBN SMIS | 360.85 | 360.85 |
| I&E FX Window | 363.89 | 363.60 |
| Cash Market | 361.50 | 361.70 |
| Transfer Market | 364.50 | 364.50 |
Source: CBN, FMDQ, REXEL BDC
Eurobonds
The NIGERIA Sovereigns remained slightly bearish despite the lower trading volumes seen on the back of the US Bond Market Holiday. The 2027s were the most bearish on the day, having fell by c.0.20pct only in price terms.
In the NIGERIA Corps, we witnessed further strengthening on the DIAMBNK 19s, following news of a planned acquisition of the Bank, which was later debunked and consequently softened sentiments slightly. Other tickers were relatively flat on the day.
