Funding Rates Spike As CBN Reverses Paris Club Credits

Tuesday, September 25, 2018 / 06:40 PM /  Zedcrest Capital

***CBN Retains MPR at 14%, but with a Hawkish Bias***

KEY
INDICATORS







Indicator

Value

Commentary

Inflation

11.23%

As at September14,
2018,9bps up from 11.14% recorded in July 2018.

MPR

14.00%

Left Unchanged
for the 11th Consecutive Time at the Sept. 25, 2018 MPC Meeting

External
Reserves

$44.83bn

As atSeptember 21,
2018. A c.0.11% decrease from $44.89bnon Sept. 20, 2018

Brent Crude

$81.38pb

As at September25,
2018. A c.0.13% increasefrom$80.16pbon
Sept. 24, 2018

 

 

Bonds

The
Bond market remained largely order driven, with yields closing relatively flat
on the day. We witnessed slight sell on the 2027s which inched higher by
c.5bps, as market players priced in expectations for the auction tomorrow.

 

Following
the slightly hawkish tone by the CBN at its MPC meeting today, combined with
fears of continued inflationary pressures from expected fiscal injections and
rising food costs, our expectations are for yields to maintain a gradual uptick
towards year end. We are consequently not bullish on bonds at these levels.

 

Local
Demand for the short and mid tenured bonds has however been moderately robust
in recent times and we consequently expect moderate demand at the FGN Bond
auction tomorrow.







FGN
Bond Auction Expectation

Tenor

Offer
(N’bn)

Expected
Stop Rate (%)

Previous
Stop Rate (%)

APR
2023

25.00

14.70
– 14.90

14.39

MAR
2025

25.00

15.00
– 15.15

14.60

FEB
2028

40.00

15.15
– 15.30

14.69

 














Secondary Market Bonds

Description

Bid (%)

Offer (%)

Day Change (%)

15.54
13-Feb-20

14.14

13.33

0.00

14.50
15-Jul-21

15.17

15.01

0.09

16.39
27-Jan-22

14.72

14.42

(0.03)

14.20
14-Mar-24

15.02

14.84

0.00

12.50
22-Jan-26

15.23

15.14

0.00

16.29
17-Mar-27

15.23

15.16

0.05

13.98
23-Feb-28

15.23

15.14

0.00

12.15
18-Jul-34

15.43

15.31

(0.01)

12.40
18-Mar-36

15.45

15.35

0.02

16.2499
18-Apr-37

15.42

15.28

0.01

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market traded on
a




bearish note, with yields
inching higher by c.35bps on average. This came on the back of some selloff
mostly on the shorter end of the curve as market players reacted to the
reversal of the paris club credit by the CBN which led to a significant decline
in system liquidty.

 

We expect yields to remain
slightly elevated until Thursday, where we expect inflows from OMO T-bill
maturities to bolster system liqudity and fuel some buying interests in the
market.

 

 

Secondary Market Treasury
Bills












Description

Bid (%)

Offer (%)

Day Change (%)

4-Oct-18

12.00

9.00

(1.50)

1-Nov-18

13.00

11.50

(1.00)

6-Dec-18

13.00

12.10

0.00

3-Jan-19

12.75

12.05

0.60

14-Feb-19

13.00

12.55

0.20

14-Mar-19

12.85

12.30

0.00

4-Apr-19

13.00

12.00

0.55

18-Jul-19

13.00

12.50

(0.20)

1-Aug-19

13.00

12.50

(0.35)

Source: Zedcrest Dealing
Desk
 

 

 

Money
Market

The OBB and
OVN rates spiked by c.10pct to 18.00% and 19.42% respectively. This came on the
back of CBN debits in respect of reversal of Paris club payments to states by
the FG. System Liquidity consequently declined sharply to c.N122bn from
c.N478bn previously.

 

We expect
rates to remain elevated at these levels, as there are no significant inflows
expected tomorrow.

 






Money Market Rates

 

Current (%)

Previous (%)

Open
Buy Back (OBB)

18.00

8.33

Overnight
(O/N)

19.42

9.08

Source: FMDQ, Zedcrest Research

 

FX Market

At the Interbank, the Naira/USD rate remained
stable at N306.35/$ (spot) and N360.94/$ (SMIS).  At the I&E FX window a total of $264.04mn
was traded in 390 deals, with rates ranging between N360.00/$ – N365.00/$. The
NAFEX closing rate appreciated by c.0.15% to N363.72/$ from N364.28/$
previously.

 

At the parallel market, the cash rates appreciated
by 20k to N359.60/$, while the transfer rate remained unchanged at N362.00/$.









FX Market

 

Current (N/$)

Previous ( N/$)

CBN
Spot

306.35

306.35

CBN
SMIS

360.94

360.94

I&E
FX Window

363.72

364.28

Cash
Market

359.60

359.80

Transfer
Market

362.00

362.00

Source: CBN, FMDQ, REXEL BDC

 

 

 

Eurobonds

The NGERIA Sovereignswas slightly bullish,
with yields compressing by c.4bps on average. We witnessed the most interest on
the 2027 which gained c.0.33pct in price terms.

 

The NGERIA Corpswere slightly bullish, with
slight interests seen on the Zenith 19s, Access 21s Sub and Ecotra 21s.

 

 

 

 Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

 

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8.     Markets Take a Breather as CBN Pauses on OMO

9.      Market Players Selloff Bills above 14% as CBN
extends OMO offer to the 1-year

10.  Yield Curve Nears Inversion as DMO Clears 1-Year
Bill at 15.60% eff. Yield

11.   Market Players Risk off T-bills, as CBN
Elongates OMO Tenor above the 300day Mark

12.  Ahead of Next T-bills Auction Scheduled for 12th
Sept, 2018

13.  Market Players Demand Higher Rates for OMO, as
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