November 20, 2019/Coronation Report

Two interest rates emerge
A month ago the Central Bank of Nigeria (CBN) stopped most domestic investors, including pension funds, from investing it its open market operation (OMO) bills. As the OMO market is much larger than the T-bill market this heralded a rotation of money from maturing OMO bills into T-bills. As the chart on this page shows, OMO bill yields and T-bill yields, which once tracked each other, have now parted. T-bill yields are close to the level of inflation and could tighten much further if the CBN’s current.

Investment implications
If T-bill rates continue to tighten then we expect to see a continuation of investment trends already set in place over the past month, namely a tightening in yields of long-dated Federal Government of Nigeria (FGN) bonds and a rally in bank stocks, particularly those whose dividend yields exceed the T-bill yield and the long-term Naira bond yield.

Click here to read full PDF copy of report